Reduction of Priming Sugar

Somehow, someway I've ended up with only 3.5 gallons after transferring to secondary. I think it's a combination of my 5 gal. mark on my primary carboy possibly being wrong and not wanting to grab any sediment while racking, thus leaving a good bit in the primary. This is my first brew so this might be a stupid question. Should I reduce my priming sugar from 5 oz. to 3.5 oz.?

Absolutely.

Also tilting the fermenter when racking has allowed me to get a lot more beer.

The sediment will stay on the bottom pretty well as long as you don't jostle it up right before racking. For example, I used to have to carry the carboy up a flight of stairs from the basement in order to rack in my kitchen. I would bring it up at minimum an hour before I planned to rack, even better the previous day. That lets all the stuff I shook up settle back down. Then you can quite literally skim off the surface of the trub and take all the good beer. Tipping the carboy helps quite a bit as well. Also, get an auto-siphon. Worth its weight in gold. Its end is designed to sit just above the trub level so it grabs as much beer as is possible to get.

calculator for priming sugar: http://tastybrew.com/calculators/priming.html

always by weight...not volume.

I always use .8 oz per gal, except for Weizens.

At 3.5 gals = 2.8 oz.