Help calculating price with tax and rebate?

This may be a stupid question but how does the dealer calculate your final price if you have a rebate? I have an offer of $27,500 before tax or my $1000 College Grad Rebate.

So do they take the $27,500 charge tax, then subtract the $1000?

OR

Do they subtract the $1000 from $27,500 then charge tax?

Also does $27,500 sound like an honest price for a 2011 Access 4x4 AT Sport?