At my law firm, each attorney has various state law responsibilities. I handle Texas. Texas appeals to me for a number of reasons, most of which involve its ever changing laws and regulations and their legal complexity. Interpreting Texas law is both challenging and rewarding. Unfortunately, however, I spend a lot of time explaining to clients why they can’t do something in Texas—why they can’t charge a particular fee, sell a particular product, or exceed a particular interest rate. Don’t get me started about interest in Texas, that’s a book, not an article. While Texas motor vehicle dealer laws and consumer credit laws are particularly complex and incredibly restrictive, once in a while, I get to give a client good news. Recently I did legal research regarding whether a motor vehicle dealer needs a license to sell used motor vehicles online.
Initially, a review of Texas laws applicable to dealer licensing indicated that a person needs a dealer license to sell new and used motor vehicles in Texas. A motor vehicle is any vehicle needing a registration under Texas law and a vehicle needs registration if it is to be driven on the highway. I am paraphrasing, but you get the point. In order to obtain a dealer license, a person must have a physical location in Texas. So, if a person is selling motor vehicles in Texas, the person needs a dealer license and a physical location in Texas. Texas law did not provide an express exemption from licensing for my client and certainly did not expressly exclude online motor vehicle dealers from licensing. Conclusion: My client needed to obtain a motor vehicle dealer license to sell motor vehicles in Texas and must have an in-state office in order to get licensed.
Not so fast. A quick call to the Texas Department of Transportation Motor Vehicle Dealer Licensing Section indicated that the Department does not require an online motor vehicle dealer with no physical location in Texas and no employees or agents in Texas to obtain a motor vehicle dealer license to sell used motor vehicles to Texas residents. Is that what the law says? Not really, however, rarely do state laws catch up with ever changing technology. Regulators often have to adapt antiquated laws to environments for which they were not written.
In this case, my regulator adopted a circular line of reasoning to get to a reasonable conclusion. In order to sell motor vehicles in Texas, a dealer needs a general distinguishing number (a license for you non-Texans). In order to obtain a license, a dealer needs a physical location in the state of Texas. If a dealer doesn’t have a physical location in Texas, a dealer can’t get a license. So, if a dealer does not have a physical location in Texas, the dealer does not need to obtain a license. Hence, no office no license—no license no office.
Since Texas should not attempt to license dealers outside of its borders or require an in-state office to sell motor vehicles to Texas residents if the sale occurs outside of Texas, my regulator’s conclusion is entirely reasonable. Further, Texas has adopted an approach that is consistent with the approach taken in a majority of states that license used car dealers. Getting to the conclusion from the written law, however, is another story.
As stated above, Texas law requires licensing for motor vehicle dealers in Texas. Texas does not expressly exempt motor vehicle dealers that do not have a place of business in Texas from the dealer licensing requirement, but requires a place of business in order to obtain a license. Further, Texas law even goes as far as allowing licensed dealers to sell vehicles over the Internet. Regardless of the express letter of the law, however, in order to adapt to changing times (and online powerhouses such as eBay), regulators can develop interpretations of laws to achieve rational and reasonable outcomes.
Texas is so highly regulated and pro-consumer, so rational and reasonable business-friendly outcomes may not be the norm, but in this case online motor vehicle dealers located outside of Texas with no employees in Texas may be able to rest easy without a Texas used car dealer license.
As usual, always make sure your own lawyer agrees with me, and rely on that lawyer’s advice before proceeding!
Nicole Munro is a partner in the Maryland office of Hudson Cook, LLP. Ms. Munro represents motor vehicle dealers, sales finance companies, and lenders engaged in motor vehicle finance transactions. She can be reached at 410-865-5430 or by email at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
Copyright CounselorLibrary.Com, October, 2007, all rights reserved. This article will appear in Spot Delivery. Single publication rights only, to Dealer Marketing Magazine. HC# 4838-8840-9859 (11/05/08). CounselorLibrary.com LLC produces Spot Delivery and CARLAW. For information, call 410-865-5400 or visit www.counselorlibrary.com.