Gas Water-heater replacement, garages and codes questions (kinda long)

The downstairs WH in the garage became a nice water-fountain the other morning. Called up a company to see about replacing and was knocked over by the cost. The old WH is in a closet in the garage, on the floor, vented almost straight up to thru the roof. Overflow is plumbed into a pipe going into the wall which is tied to the house drain (as I can't see anyplace where it comes out of the wall to the outside). It is natural-gas.
The quote is as follows:
Raised stand: $295.00 Alarm(water-leak): $85.00 Pipe Insulation: $38.00 Venting: $50.00 Pan: $90.00 40gal, mid-line natural-gas WH: $400 (may have been a bit more--my eyes glazed over at this point) Misc: $50.00
All of this is due to code changes (the house is almost 40yrs old). Ok. I can understand needing to have the WH "x" inches above the floor in the garage. But the guy is telling me that they have to re-plumb because the supply and outlet pipes have to be a set distance above the top of the WH. Pan and alarm are new code requirements and pan must be plumbed into drain. He also said something about the overflow needing to be replumbed as well.
I politely told him I would try to sell my firstborn and would contact him later. I then went over to the local HD (which is closer than Lowe's) and discovered:
stand: $29.95 pipe insulation: $5.00 pan: $9.95 40gal, mid-line gas WH: $249.00 and so on.
Questions: It looks to me like this service-company say "sucker" written on my forehead. Are these charges legit for this kind of work? I don't mind someone making a living but I don't want to be supplying the down-payment for their new bass boat.
Where can I find the codes that now apply to water-heaters in garages for Tarrant County, TX? Is that just a municipal thing?
What's with this water-alarm thing? The folks in the plumbing dept at HD said they had never heard of such a thing being required.
We have another 40gal WH upstairs, about 40+ft from the downstairs. I'm thinking of plumbing upstairs into the downstairs and just use one WH for the time being. Using CPVC it looks like I can do that for less than $50.00. Then when I win the lottery I can put in a new WH downstairs. Anybody see a reason to NOT do that (other than it will take longer to get hot-water to the kitchen sink)?
Thoughts, comments, etc. appreciated.
Bill
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Bill W. wrote:

Phew! Call your local bldg dep't and ask about Code requirements. (They'll probably harp about your needing a permit.)
I can't think of any reason not to use the single heater for all the uses; you might even find that demand is such that you don't need the garage heater.
Jim
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