Texas Dealership Laws: Fees, Lemon Law, and Cash Reporting

Texas dealership laws cover licensing, advertising, financing disclosures, taxes and fees, weekend sales, license plates, and even overtime for the people who work on the lot. The Texas Department of Motor Vehicles handles dealer licensing, titles, and advertising enforcement, while the Office of Consumer Credit Commissioner polices how deals are financed and disclosed.{¹} Federal rules layer on top of all of that. If you are buying a car, selling one through a dealership, or working at one, the rules below are the ones that will actually reach into your deal.

Who Can Legally Sell Cars in Texas

Anyone who sells, exchanges, or leases motor vehicles in Texas has to hold a General Distinguishing Number (GDN) from the Texas Department of Motor Vehicles under Transportation Code Chapter 503. Franchised new-car dealers, independent used-car dealers, and wholesale dealers (who sell only to other licensed dealers) each get their own GDN category.

The location rules alone weed out fly-by-night operators. A dealer’s office has to sit inside a permanent building with a roof and four exterior walls, contain at least 100 square feet of interior floor space, and have a minimum seven-foot ceiling. It cannot be inside a residence, hotel, gas station, or convenience store unless the dealership has its own separate entrance. Virtual offices and coworking subscriptions do not qualify. Every retail dealer also needs a display area big enough to hold at least five vehicles of the type the GDN covers, reserved for inventory and kept separate from customer and employee parking.{²}

Independent dealers also have to post a $25,000 surety bond before receiving a GDN. The bond backs up consumers and the state if the dealer commits fraud, fails to transfer titles, or pockets collected taxes. Losing the bond or the site can suspend the license immediately.

You Do Not Have Three Days to Cancel

The most persistent myth in car buying is the three-day right to return. The federal Cooling-Off Rule explicitly excludes motor vehicles sold at a dealership with a permanent location, and Texas has no state equivalent.{³} Once you sign at a dealership, the contract binds you.

This matters most with financing. If you drive off on a “spot delivery” and the lender later declines the application, you are not in a protected position. The only escape hatch is a voluntary return clause written into the contract itself, and most contracts do not include one. Read the deal before you sign it, because after you sign, changing your mind is not a legal right.

Lemon Law Coverage for New Vehicles

The Texas Lemon Law, in Occupations Code Chapter 2301, gives buyers of defective new vehicles a route to a replacement or refund when the manufacturer cannot fix the problem. It applies to new cars, trucks, motorcycles, and motor homes still under the original manufacturer’s warranty. Used vehicles are not covered.

Under Section 2301.604, a defect is presumed serious enough to warrant relief if either of two tests is met:

The same problem persists after four repair attempts, or after two attempts if the defect is a serious safety hazard such as a fire risk or loss of vehicle control.{}⁴
The vehicle has been in the shop for a cumulative 30 or more days during the current warranty term for warranty repairs. Days when the manufacturer provided a comparable loaner do not count.{}⁴

Before the presumption applies, you must give the manufacturer written notice of the defect and a reasonable chance to fix it. Qualifying claims go to the Texas Department of Motor Vehicles, which holds a hearing through its Lemon Law section. A successful claim results in either a replacement vehicle or a refund of the purchase price minus a reasonable usage allowance.

Even if you bought used, the federal Magnuson-Moss Warranty Act protects any vehicle sold with a written warranty. Under that law, a dealer or manufacturer cannot void your warranty just because you had routine maintenance done at an independent shop.

Advertising, Pricing, and Disclosure

Dealership advertising sits under both the Texas Deceptive Trade Practices Act and federal disclosure rules.

Deceptive Trade Practices Act

The DTPA, in Business and Commerce Code Chapter 17, bans false, misleading, or deceptive acts in trade. For dealers, that reaches advertised prices, condition claims, and financing representations.{⁵} A dealer who advertises a price it will not honor, or hides material facts about a vehicle, violates the act. A consumer who proves a violation can recover actual damages plus attorney fees, and if the dealer acted intentionally, the court can award up to three times the economic damages.

Salvage History

Any dealer selling a vehicle previously titled as salvage must post a written notice visible from outside the vehicle stating it was repaired, rebuilt, or reconstructed. At closing, the buyer signs a separate acknowledgment of the salvage history. That acknowledgment can appear in the buyer’s order but needs its own signature line and must be printed in at least 14-point font.{⁶}

Used-Car Buyers Guide

Every used vehicle on a dealer’s lot must display a window sticker called the Buyers Guide. It must state whether the dealer offers a warranty, and if so, its duration, what systems it covers, and what percentage of repair costs the dealer will pay. If the vehicle is sold “as is” where state law allows that, the guide must say so plainly.{⁷}

Financing and Lease Disclosures

The federal Truth in Lending Act requires any dealer or lender arranging a car loan to disclose the annual percentage rate, total finance charges, and monthly payment before you sign.{⁸} On leases, the Consumer Leasing Act and Regulation M require separate disclosures for the payment schedule, early-termination charges, and any end-of-lease purchase option.{⁹}

What Actually Gets Added to the Price

The number on the window is never the number you pay. Several charges are stacked on top before you drive off.

Sales Tax

Texas charges a Motor Vehicle Sales and Use Tax of 6.25% of the sales price, minus the value of any vehicle you trade in.{¹⁰} The dealer collects it and sends it to the state. Buy a $30,000 car with a $10,000 trade-in and you owe 6.25% of $20,000, or $1,250.

Vehicle Inventory Tax

Texas dealers pay a monthly Vehicle Inventory Tax on each vehicle they sell, calculated using a “unit property tax factor” set by the local county appraisal district.{¹¹} It replaces the property tax that would otherwise apply to their inventory, and dealers typically pass it through as an itemized line on the buyer’s paperwork.

Title and Registration

The state charges $33 to issue a new certificate of title when a vehicle changes hands. Base annual registration for a standard passenger car is $50.75, with local and specialty-plate fees on top.{¹²}

Documentary Fee

The documentary fee, or “doc fee,” is not a government charge. It is what the dealer charges for handling the paperwork. Texas does not cap the amount, but the rules push dealers to keep it modest. A doc fee of $225 or less is presumed reasonable. A dealer who wants to charge more must file a notification and cost analysis with the Office of Consumer Credit Commissioner before doing so.{¹³}

Whatever the amount, the doc fee has to appear on both the buyer’s order and the retail installment contract, next to a required notice in conspicuous type stating that the fee is not an official fee, is not required by law, may not exceed a reasonable amount agreed to by both parties, and that the notice itself is required by law. The dealer must charge the same doc fee to cash buyers and financed buyers.{¹⁴}

Why Dealerships Close on Saturday or Sunday

Texas still enforces a weekend “Blue Law” for car sales. Transportation Code Section 728.002 prohibits selling or offering to sell a motor vehicle on both Saturday and Sunday of the same weekend.{¹⁵} Each vehicle offered on a prohibited day is a separate violation, and each completed sale is another.

So every dealership picks a closed day for sales. Service departments and parts counters can stay open, but the sales floor shuts down. The statute exempts occasional private sales by people not in the car business, and it does not apply to motor homes or tow trucks at certain shows or exhibitions.

Metal Plates Instead of Paper Tags

As of July 1, 2025, Texas dealers can no longer issue paper temporary buyer’s tags. Under House Bill 718, licensed dealers must give the buyer a metal license plate at the time of sale. The old eTAG system for buyer, internet-down, vehicle-specific, and agent-specific tags has been retired and renamed ePLATE.{¹⁶}

Paper tags issued before the cutoff stay valid until their printed expiration date. A few narrow paper permits still exist, including 72- and 144-hour permits for commercial vehicles, five-day transit permits for private-sale vehicles, and factory delivery permits for moving new vehicles from the assembly plant to a dealership.{¹⁶} The change was a response to widespread fraud that had turned the paper-tag system into a tool for concealing stolen vehicles.

Paying More Than $10,000 in Cash

Any dealer who receives more than $10,000 in cash from a single buyer, in one transaction or in related transactions, must file IRS Form 8300 within 15 days of the payment that crosses the $10,000 line.{} Transactions are “related” if they happen within 24 hours or if the dealer has reason to know they are part of a connected series, and recurring cash payments that add up past $10,000 within a 12-month period trigger the same filing.{¹⁷} If you plan to pay cash for a car, expect the dealer to ask for the information the form requires.

Overtime Rules for Dealership Workers

If you work at a Texas dealership as a salesperson, parts employee, or mechanic, federal overtime pay probably does not apply to you. Section 13(b)(10) of the Fair Labor Standards Act exempts those three roles from overtime when the employee spends more than half of their work time on the exempt activity and the dealership earns more than half its revenue from selling vehicles.{¹⁸}

Courts read those exemptions narrowly against the employer. If a mechanic spends a given workweek mostly on non-exempt tasks like detailing or general maintenance, the exemption may not apply for that week. The dealership carries the burden of proving the exemption, not the employee.{¹⁹}

1
Texas Department of Motor Vehicles. Motor Vehicle Dealer Manual
2
Texas Department of Motor Vehicles. 43 TAC 215.133 and 215.140 Adopted Rules
3
Federal Trade Commission. Buyers Remorse – The FTCs Cooling-Off Rule May Help
4
State of Texas. Texas Occupations Code Chapter 2301 – Sale or Lease of Motor Vehicles
5
Texas Department of Motor Vehicles. Motor Vehicle Advertising
6
Legal Information Institute. 43 Texas Admin Code 215.160 – Duty to Identify Motor Vehicles
7
Federal Trade Commission. Used Car Rule
8
Consumer Financial Protection Bureau. What Is a Truth-in-Lending Disclosure for an Auto Loan
9
Consumer Financial Protection Bureau. 12 CFR Part 1013 – Consumer Leasing Regulation M
10
Texas Comptroller of Public Accounts. Motor Vehicle – Sales and Use Tax
11
Texas Comptroller of Public Accounts. Dealers Motor Vehicle Inventory Tax Statement
12
Texas Department of Motor Vehicles. Register Your Vehicle
13
Legal Information Institute. 7 Texas Admin Code 84.205 – Documentary Fee
14
Office of Consumer Credit Commissioner. Motor Vehicle Sales Finance
15
State of Texas. Texas Transportation Code 728.002 – Sale of Motor Vehicles on Consecutive Saturday and Sunday Prohibited
16
Texas Department of Motor Vehicles. House Bill 718 Implementation
17
Internal Revenue Service. Report of Cash Payments Over $10,000 Received in a Trade or Business – Motor Vehicle Dealership QAs
18
U.S. Department of Labor. Fair Labor Standards Act Advisor
19
eCFR. 29 CFR 779.372 – Nonmanufacturing Establishments With Certain Exemptions