That is the total price including taxes and fees. So lets say total taxes and fees are $1000.

OP said $8500 and he would pay the taxes and fees so total for car would be $9500, $8500 for the car. $1000 for taxes and fees.

Dealer counted with $8800 Out the door meaning taxes and fees are included in the $8800.

So the price of the car would have been $7800 than $1000 in taxes and fees to make it $8800.

Now as others have said maybe the dealer thought that the $8500 was OTD so included the taxes and fees.