Local businessman Adam Sims landed the banner much to the chagrin of local activist and candidate for governor June Griffin.
Sims's winning bid was $260.
Griffin was charged in 2006 with entering a local Hispanic grocery, taking the flag and later telling its owners to "speak English or get out."
Civil rights charges against Griffin were later dropped when the store owners left the area.
Standing in the midst of dozens of people and several vehicles Saturday morning at the Dayton Maintenance Building on California Avenue, Sims and Griffin quietly bid for the flag with nods of the head.
Griffin started the bidding at $1, but the price soon escalated.
Also attached to the flag Sims bought was a business card on which Griffin had written, "Remember the Alamo! Speak English or leave!"
After Sims landed the flag, Griffin looked at him and yelled, "Remember the Alamo."
Immediately after the flag sold, Griffin said she was disappointed she didn't get it.
"I've already paid $500 for it in bond money," she said. "I wanted to see what kind of people we have here. I would like to know why he wanted it."
In a statement released Monday, Griffin said she could only spend $40 for the flag, so she tried to drive up the price when she realized Sims wanted the flag.
"The price quickly climbed way above my $40 and I thought to myself, well, we might as well take it over the top.
"I cannot imagine why Mr. Sims wanted the flag, but our sovereignty is no joking matter," Griffin said. " I am not ashamed of anything I have done for this holy cause. You can be sure, if I am elected governor, there will be no foreign flags flying in Tennessee."
Sims said he wanted the flag to show support for the local Hispanic community. Among other local businesses, Sims also owns and operates a car dealership in Monterrey, Mexico.
"It's the principle," he said. "I don't care if [Hispanics] speak English or not. They have hearts just like we do."
Sims said he had no limit for how much he was going to spend on the flag.
He also praised migrant workers who come to the Unites States to work, especially from Mexico, a country battling drug cartels and widespread corruption.
"They have an opportunity to help their families in Mexico," Sims said. "They do not want any trouble."
Sims said he knew the owners of the store Griffin took the flag from. They left the area out of fear, Sims claimed. At last check, he said they were living in Dalton, Ga.
Sims said he plans on displaying the flag at his Dayton car dealership.
June Griffin was also one of the folks behind the blink-and-you'll-miss ban on homosexuals in this county a few years ago.
I've been living in Dayton for two years now, and I honestly feel like I witnessed more tolerance and compassion growing up in TEXAS than I've ever seen here.