This forum deals with questions about income tax. The tax that you paid when you bought the extended warranty is sales tax, not income tax, so we can't give you much help here. You can't get a refund of sales tax on your income tax return.
I think the dealership is giving you a runaround. Canceling the extended warranty is like returning a product that you bought. When you return a product, the store refunds the sales tax as well as the purchase price. The dealership should do the same. You didn't pay the sales tax to the state yourself. The dealership collected the tax from you and they paid it to the state. They can get a refund from the state. You should probably contact your local consumer affairs department or the Better Business Bureau.
