Tennessee has quickly turned into a top location for investing in Airbnb. The music scene, the delicious cuisine, the world-famous whiskey, and the Great Smoky Mountains National Park continue bringing tourists year-round, making The Volunteer State a smart choice for vacation rental investors.
However, savvy investors know that they need to study the local Airbnb laws and rules before choosing a location and buying a property. To help you out, we have compiled the Tennessee short term rentals laws that pertain to hosts. In addition, we’ve also provided a city-level breakdown of the local vacation rental regulations in the most prominent Tennessee markets.
In brief, running a short term rental business is legal in the State of Tennessee. Still, you need to complete some procedures and follow certain rules that ensure guests’ safety and the State’s due profit. Importantly, the State legislation prohibits local governing authorities from restricting short term rentals unless this is done to protect the public’s health and safety. This sets Tennessee apart from other states where vacation rentals have been severely restricted.
*Awning full-service property management is 15% of revenue and includes navigating the legal requirements and paperwork of setting up a vacation rental.
Tennessee’s Definition of a Short Term Rental
The Tennessee Short-Term Rental Unit Act defines a short term rental unit as a residential dwelling - whether a single family dwelling or a unit in a multi dwelling such as an apartment building, a condominium, a cooperative, or a timeshare - that is rented out fully or partially for a fee for a period of less than 30 consecutive days. This definition classifies short term rentals as a type of hotel.
This is very similar to the way in which other states like Florida, Texas, and California define this type of accommodation. Like Texas short-term rental rules, Tennessee does not impose state-level restrictions and licensing requirements, while according to the Florida short term rental laws, for example, all such properties have to be properly licensed by the state.
Another important difference exists between Tennessee and California as the latter limits the maximum transient occupancy to 180 calendar days per year for non-owner occupied dwellings. Meanwhile, the former does not differentiate between owner-occupied and non-owner occupied vacation rentals, which makes this a viable investment strategy for in-state and out-of-state real estate investors.
Noteworthy, the Tennessee Short-Term Rental Unit Act explicitly prevents local governing authorities from prohibiting the use of a property as a short term rental and restricting or regulating a short term rental unit based on classification, use, or occupancy. This is a major clause which sets Tennessee apart from many other US states and which makes the local legislative environment conducive to the further growth and development of the vacation rental industry.
Nevertheless, local governing bodies may enact local laws and limit or prohibit the use of a short term rental when it comes to matters related to the public’s health and safety. This feature of the Tennessee short term rental regulations assures that the interest and wellbeing of the general public are taken care of without compromising the rights of Airbnb hosts and owners.
Starting a Short Term Rental Business in Tennessee
Starting a new Airbnb business in the State of Tennessee is relatively easy and does not require many steps.
A Tennessee short term rental property is expected to comply with all state property requirements related to fire sprinklers, smoke alarms, and carbon monoxide alarms. Since these properties are classified as hotels, a smoke alarm needs to be installed in each room used for sleeping purposes. Alarms need to be maintained, repaired, and tested as necessary.
In addition, you have to register with the relevant tax authorities as running an Airbnb business in Tennessee requires paying a few different types of taxes. However, the state has put effort into assuring that the process is as smooth as possible.
According to the Tennessee short term rental regulations, if you hire a property management company, then the company - and not you as the property owner - is responsible for collecting and remitting taxes. If, on the other hand, you rent out your property through an online short term rental unit marketplace such as Airbnb, Vrbo, and others, the marketplace platform is responsible for collecting and remitting sales tax and hotel occupancy tax.
Short Term Rental Licensing Requirement in Tennessee
Tennessee Airbnb properties do not require licensing at the state level. However, a property owner or a property management company must have both:
- County business tax registration for each county in which it has a short term rental property.
- City business tax registration for each city in which it has a short term rental property.
This is because business taxes are paid at the local level for the jurisdiction.
A taxpayer needs to submit a single business tax registration form per jurisdiction even if they own a property. Furthermore, only one business tax return is filed for each jurisdiction covering all properties located there.
There is a minimum requirement for registration and filing of $10,000 in taxable gross receipts per jurisdiction. Vacation rental property owners and management companies are classified as providers of services, which means that they fall under Classification 3 for business tax purposes.
You must pay a $15 business license registration fee for each new property to each county and/or city where you run a short term rental business. After registering for a business tax license, you need to contact each county and/or municipal clerk individually to arrange for the payment and to obtain the business license. The Department of Revenue takes about 10 business days to register a business.
License Renewals for Short Term Rentals in Tennessee
Tennessee short term rental laws do not require renewing licenses at any specific interval. In most counties and cities business licenses are automatically renewed each year once you file and pay taxes.
Required Documents for Tennessee Short Term Rentals
There are no specific documents required for starting a short term rental business in the Tennessee real estate market because licensing is not needed. The documents that a property owner or a property management company will need to present for getting a business license may vary from one jurisdiction to another. Thus, it is recommended that you check the local authority’s website for the exact documents you will need to prepare and present in your location.
Tennessee Short Term Rental Taxes
A Tennessee Airbnb business owner is expected to pay a number of different taxes. These include:
Based on the Tennessee short term rental regulations, sales tax has to be paid on this type of business both at the state and the local level. If you rent out your property via an online marketplace facilitator that is required to collect sales tax, you as the host don’t have to report this tax. Airbnb, for example, collects and remits taxes.
The state sales tax rate is set at 7%. In addition, there is a local sales tax whose rate cannot exceed 2.75%. The total state and local sales tax rate averages 9.55%.
Sales tax is paid on the listing price including cleaning fees and guest fees.
Keep in mind that even if your sales tax is collected by an online marketplace, you still need to maintain records to be able to document that the platform has paid taxes on your behalf.
As an Airbnb host in Tennessee, you are responsible for paying use tax on items used for the provision of accommodation on which Tennessee sales tax has not been paid. This could be, for example, Airbnb furniture that you buy out of state for which no Tennessee sales tax has been charged.
Sales and use tax can be filed monthly, quarterly, or annually.
As mentioned above, you or the property management company taking care of your vacation rental needs to register for a business license and pay business tax in case the gross taxable receipts of all your rentals in a jurisdiction amount to $10,000 or more. This tax is paid at the county and municipal level, and the rates vary from one jurisdiction to another.
In case your gross taxable receipts in a jurisdiction range between $3,000 and $10,000, an investor still needs to obtain a minimal activity license from their county and potentially their city.
Business tax returns are filed once a year.
Even if you list your property on an online marketplace like Airbnb and Vrbo, they cannot file and pay business tax on your behalf.
Franchise and Excise Tax
When operated through an LLC or another entity providing limited liability protection, Tennessee short term rentals might be subject to franchise and excise taxes.
Sole proprietors and general partnerships, on the other hand, do not have to pay these taxes.
While the State of Tennessee does not impose hotel occupancy tax on short term rentals, local authorities including counties and cities do. As of January 1st, 2021 this tax is collected directly by short term rental unit marketplaces and remitted to the relevant Department of Revenue. If you rent outside these marketplaces, you need to collect and remit the occupancy tax yourself.
The occupancy tax is paid based on the listing price including cleaning fees. The rates vary from county to county and from city to city.
Generally speaking, the Tennessee short term rental taxes are very similar to the taxes that Airbnb hosts are expected to pay in other states across the US market. The fact that online marketplaces can cover some of the local taxes offers great facilitation to investors considering the Tennessee real estate market.
Similar to elsewhere, running a vacation rental business in Tennessee comes with important tax benefits and deductions. Familiarizing yourself with those and taking advantage of them is a smart way to boost your cash flow and improve your bottom line.
The expenses that you can deduct for your Airbnb business include:
- Mortgage interest
- Mortgage insurance premium
- Real estate taxes
- Fixes and repairs
- Cleaning services
Statewide Short Term Rental Rules in Tennessee
The Tennessee state-level legislation on short term rentals is rather lean, making the life of an Airbnb host relatively easy. The main rules apply to the safety of guests and include the necessary installment, maintenance, fixing, and testing of fire sprinklers, smoke alarms, and carbon monoxide alarms.
Individual cities within the Tennessee market have their own short term rental rules, and property owners need to familiarize themselves with these before starting to operate a business there. The best source of information on local regulations are the county and city authority websites.
Short Term Rental Rules By Tennessee City
The Tennessee Short-Term Rental Unit Act prohibits local governments from unnecessarily limiting the work of vacation rentals. Nevertheless, they can still impose further rules and regulations to ensure the public safety and security.
Most Tennessee cities have introduced their own Airbnb laws to make up for the overall lack of such at the state level. Following are the Tennessee short term laws by city for the major Airbnb markets within the state.
The City of Chattanooga defines a short term rental as a house or another structure with no more than 9 bedrooms located within permissible zones which is used or advertised in part or in full as a place where sleeping accommodations are provided for pay, on a daily or weekly basis, not exceeding 30 days.
Properties located in R-1 and R-2 Zones are subject to Short-Term Vacation Rental District restriction, while those zoned R-3 and R-4 are not.
Chattanooga short term rentals are divided into two main categories:
- Owner-occupied: Vacation rentals that are the primary residence of the Airbnb host.
- Non-owner occupied: Short term rentals that are not the primary residence of the owner.
To run a Chattanooga Airbnb business, you need to obtain a short term vacation rental certificate from the City of Chattanooga Land Development Office. This requires the payment of a non-refundable application fee of $150.
Being approved for a non-owner occupied short term rental is relatively more complicated. It requires that adjacent property owners owning land within 300 feet of your property provide any concerns or objections that they might have, in writing. Furthermore, a copy of your application will be mailed or emailed to the neighborhood association, if applicable, and the Council member representing the district of your property. In addition, the Fire Marshal and a City Building inspector will be notified to ensure that the property complies with state and local laws.
Certificate applications must designate a short term vacation rental agent who is reasonably available to handle any problems and able to appear on the property within 2 hours after receiving a notification from the City.
Operating without a certificate as well as other violations will be penalized with a fee of $50 per violation per day.
Chattanooga short term vacation rental certifications need to be renewed annually provided that none of the previously provided information has changed. The annual renewal fee is $150.
The City of Chattanooga also imposes maximum occupancy requirements. The maximum occupancy should not exceed 2 persons per bedroom of 210 square foot plus 2 additional persons. Larger rooms can host more guests, following a clear rule.
Other requirements that Chattanooga Airbnb hosts need to meet include:
- Complying with all applicable laws related to zoning, building, health, and safety;
- Providing adequate on-site parking;
- Assuring that all occupants abide by all applicable noise restrictions and waste management provisions;
- Posting the name and phone number of the owner or the agent within the rental;
- Not being part of an Affordable Housing PILOT Program.
If you are considering buying an Airbnb property in the City of Chattanooga, you should keep in mind that there has been a lot of talk and action towards imposing stricter rules and regulations. In specific, in the spring of 2022 the City Council approved a rule to pause all new applications for non-owner occupied short term vacation rentals. If enacted, this moratorium will last until January 2023 to provide the City Council with sufficient time to develop further regulations which address growing resident concerns.
So, make sure to keep an eye on developments in this regard before investing in a Tennessee short term rental property in Chattanooga.
The City of Knoxville defines a short term rental unit as a dwelling unit, a portion of a dwelling unit, or any other structure or space that is occupied, intended, or designed for occupancy by transients for dwelling, lodging, or sleeping for up to 30 consecutive calendar days.
To operate a Knoxville Airbnb legally, you need a short term rental unit operating permit.
The short term rental unit operating permit application requires:
- Written acknowledgement of the rules by the operator;
- Affidavit of life safety compliance including the presence of a smoke alarm, a carbon monoxide alarm, and a fire extinguisher;
- Lessee information including the owner’s full name, mailing address, email address, phone number, and signature;
- Local contact person who is always available to physically respond within 45 minutes of receiving a notification and capable of taking remedial actions;
- Owner information including the full name, street address, mailing address, phone number, and additional information if the short term rental property is owned by a business entity or trust;
- Site plan;
- Notification for type 1 operating permits, explained below.
In Knoxville, there are 3 types of short term rental unit operating permits based on the type of property:
- Type 1 - Owner-Occupied in Residential Districts: The short term rental property must be the principal residence of the permit’s holder except for the case of a duplex. The owner does not need to be present on site during the occupancy. The application fee is $70. These permits are personal and cannot be transferred to another person;
- Type 2 - Non-Owner Occupied in Nonresidential Districts: Such a permit can be issued to an owner or a lessee, to a person or an entity. You can hold up to 2 Type 2 operating permits in the City of Knoxville. The application fee is $120. These permits can be transferred in some cases of sales;
- Type 3 - Limited Non-Owner Occupied in Residential Districts: In general, this type of operating permits are only available to those who operated a short term rental unit prior to March 1st, 2017. The application fee is $120. These permits are personal and cannot be transferred to another person.
Upon application, the Business License & Tax Office should issue or deny the operating permit within 14 business days.
Type 1 and Type 2 operating permits need to be renewed annually for a renewal fee of $50. The fee needs to be paid no later than 14 business days before the current permit’s expiration date. Type 3 permits are no longer eligible for renewal.
Operating a vacation rental business in Knoxville without a permit will result in a penalty of $50 per day.
The City of Memphis defines a short term rental property as a residential dwelling unit or a detached accessory dwelling unit with up to 4 sleeping rooms that are used or advertised for rent for transient occupancy by guests, for no more than 30 continuous days.
To operate a Memphis Airbnb business, the owner needs to obtain a Short Term Rental Property Permit from the City of Memphis Permit Office. An owner must have an individual permit for each property and/or unit even if they are located within the same dwelling. Moreover, permits are not transferable or assignable to other people. Short Term Rental Permits have to be renewed on an annual basis, for a non-refundable renewal fee of $75.
When submitting an application, you need to provide:
- Information about the owner of the property including the name, address, email address, and phone number;
- Address of the short term rental;
- Contact information of the Short Term Rental Agent including the name, address, email address, and phone number. Each vacation rental in the Memphis real estate market needs to have one or more designated Rental Agents who are reasonably available to handle issues and are able to appear on the property within 2 hours of receiving a notification. The Agent also needs to monitor compliance with regulations;
- Sworn acknowledgement of understanding the rules by the owner;
- Maximum number of occupants;
- Agreement by the owner to do their best to ensure that the short term rental will not disrupt the neighborhood;
- Sworn Code Compliance Verification Form by the owner;
- Proof of ownership;
- Proof of hazard and liability insurance for a minimum of $1 million;
- Non-refundable application fee of $75.
Airbnb hosts need to comply with the following Memphis, Tennessee short term rental regulations:
- Assuring that all occupants abide by all applicable noise control restrictions and garbage collection and disposal provisions;
- Meeting all applicable state and local building and fire safety codes including fire alarms and carbon monoxide detectors;
- Providing only packaged, sealed, and nonperishable food and beverages to guests;
- Displaying the Agent’s name and telephone number on the property in a clear manner.
The fact that non-owner occupied short term rentals are unrestricted in Memphis distinguishes it from other major cities and top Airbnb locations across the US. Considering the popularity of Bluff City and these favorable short term rental rules, you should give this market a serious thought.
The City of Clarksville defines a short term rental unit in a way identical with Knoxville, namely, as a dwelling unit, a portion of a dwelling unit, or another structure or space that is occupied, intended, designed, or advertised for occupancy by transient guests for dwelling, lodging, or sleeping, for up to 30 consecutive calendar days.
Similar to other Tennessee markets, Clarksville Airbnb property owners need to obtain a short term rental unit operating permit from the City of Clarksville to ensure that their business is legal.
An operating permit application should have all of the following information to be considered complete:
- Acknowledgement of regulations and obligation to pay occupancy tax;
- Proof of business license;
- Affidavit of life safety compliance including the installation and current functionality of all life safety equipment;
- Owner information including the name, street address, mailing address, email address, and phone number;
- Site plan including the location, size, and use of all rooms, any accessory buildings, and designated off-street parking spaces;
- Written acknowledgement by the owner that they are solely responsible for confirming that the short term rental will not violate any regulations and agreements;
- Proof of ownership;
- Administrative processing and inspection permit fee of $150 paid to the Clarksville Department of Finance and Revenue;
- Right of entry of fire department and building and codes department;
- Sworn statement that the provided information is true and accurate.
Once the Department of Finance and Revenue considers your application complete, it will ask the Fire and Rescue Department to conduct a fire and life safety inspection and the Department of Building and Codes to perform a building safety inspection.
In Clarksville, short term rental unit operating permits are valid for one year. They can be renewed by submitting a renewal application and processing fee of $120 no later than 30 calendar days before the current permit’s expiration.
Importantly, permits are personal and non-transferable. Also each unit needs a separate operating permit.
Clarksville vacation rental properties need to meet the following operational requirements:
- Complying with applicable safety standards including the presence of a smoke alarm, a carbon monoxide detector, and a fire extinguisher;
- Paying all applicable taxes including property tax, hotel occupancy tax, sales tax, gross receipts tax, and income tax;
- Not exceeding the maximum occupancy limit as prescribed on the operating permit;
- Providing at least one parking space per bedroom offered for rent;
- Not preparing and serving food to guests;
- Posting the name and phone number of the local contact person in a clear way;
- Complying with the Clarksville City Code.
Overall, we can conclude that Clarksville benefits from favorable Airbnb laws and regulations which allow both owner-occupied and non-owner occupied short term rentals.
Similar to the rest of Tennessee, running a Nashville Airbnb business requires a permit from the Metro Codes Department to be on the legal side.
The City of Nashville distinguishes between 2 main types of vacation rental properties:
- Owner-Occupied Short Term Rental Property: This includes the renting of a dwelling unit in full or in part when it constitutes the primary residence of the owner or is located on a lot with the primary residence. In addition, the owner must be a natural person or persons and cannot be a legal entity. Rentals are limited to a single party of individuals;
- Non-Owner Occupied Short Term Rental Property: This refers to a dwelling unit where the owner does not reside. The rental is limited to a single party of individuals. Importantly, new non-owner occupied vacation rental permits are allowed only in some non-residentially zoned districts. Meanwhile, existing permit holders in districts AR2A, R, RS, and RM, where new permits are no longer issued, might be eligible for renewal as long as they retain ownership of the property. Permits are not transferable.
To complete a short term rental permit application, you need to submit the following:
- Proof of payment of all taxes;
- Floor plan;
- Proof of liability insurance;
- Notarized affidavit confirming that all provided information is true and accurate;
- HOA statement regardless of whether there is an HOA or not;
- Two forms of identification showing proof of residence;
- Fire Marshal inspection in case of multifamily dwellings;
- Permit fee of $313 upon application approval.
STRP permits need to be renewed annually. It is the responsibility of the property owner to make sure that they renew their permit prior to expiration.
Once you receive your permit, you need to follow these operational rules and regulations to operate your business legally:
- Comply with the Nashville Metro Code;
- Make sure that all occupants abide by the noise restrictions and waste management provisions;
- Meet all applicable state and local building and fire safety codes;
- Not have any recreational vehicles, buses, or trailers visible on the street or on the property;
- Not prepare or serve food to guests;
- Host principal renters of 21 years of age or more, while most Tennessee cities require the principal renter to be at least 18 years of age;
- Not exceed the maximum occupancy limit of twice the number of permitted sleeping rooms plus 4 for a maximum number of 12;
- Collect and remit state and local taxes;
- Provide the name and phone number of the local responsible party on the property clearly.
While Nashville was one of the best vacation rental markets in the US, the prohibition of new non-owner occupied properties in residential areas posed a barrier to new investors. Nevertheless, there might be valuable opportunities in the remaining zones.
Gatlinburg is yet another great location for buying an Airbnb property in the State of Tennessee. Starting a short term rental business there is easy. You need to apply for a Tourist Residency Permit from the City of Gatlinburg.
The application is a simple one-page document which requires the following information:
- Owner information including the name, mailing address, email address, and phone number;
- Address and name of the rental unit;
- Number of stories and bedrooms;
- Size of the building;
- Maximum number of occupants;
- Availability of an approved sprinkler system for tourist residences of more than 3 bedrooms, more than 5,000 gross square foot, and more than 12 occupants;
- Rental agent information including the name, mailing address, and phone number;
- Permit fee of $200 for up to 2 bedrooms and an additional $75 per bedroom.
Permits are renewable on a yearly basis.
Tourist residencies, or Gatlinburg short term rental properties, are only allowed in certain zoning districts.
In addition, to have a legal vacation rental property in the Gatlinburg market, you have to comply with all state and local safety regulations as well as to collect and remit relevant taxes.
Although it’s significantly smaller than other Tennessee cities discussed above, Pegram offers profitable Airbnb investment opportunities for hosts as well.
Importantly, neither Pegram nor Cheatham County where the town is located has enacted any short term rental ordinance. This means that all types of vacation rentals are legal. Airbnb hosts have to comply with the state-level regulations pertaining to applicable taxes as well as state and local safety regulations.
These are the city-level short term rental rules and regulations in the most prominent Tennessee markets. Remember that in addition to complying with these local laws, you also have to pay applicable county and city tax as stipulated by the Tennessee short term rental laws outlined above.
With the numerous local attractions, the State of Tennessee has turned into one of the top locations for investing in an Airbnb rental property in recent years. The relatively favorable Tennessee short term rental laws and regulations have definitely been a major factor for this. After all, it doesn’t make sense to invest in a location where you cannot run a non-owner occupied vacation rental or can only rent out for a limited number of days per year.