Guide to Tennessee’s Short-Term Rental Regulations

If you’re looking for somewhere to invest in short-term rental property, Tennessee could be your answer. Tourism in the Bluegrass State is growing at an unprecedented rate as people flock to experience its natural beauty and rich musical heritage. As the short-term rental industry booms, Tennessee State is introducing more rules and guidelines. To make the most of any investments, it’s best to stay updated and maintain compliance. Keep reading to explore short-term rental regulations in Tennessee including state laws, tax requirements, and rules for popular places. Disclaimer: Our guide is intended for informational purposes only and doesn’t constitute legal advice. For guidance on specific cases, please consult a property lawyer. 

Short-term rental regulations in Tennessee

Most regulation occurs at the municipal level in Tennessee. However, the state has a few rules and guidelines to be aware of. Tennessee considers your property a short-term rental if you rent any part of it for 29 consecutive days or less. This applies to any residential dwellings such as houses and apartments, but not hotels. If you manage a short-term rental in Tennessee, you must:

• Have liability coverage for up to $500,000
• Comply with all safety regulations
• Undergo regular state inspections
• Pay the required taxes and fees

There are also rules for local governments. Tennessee counties and cities can’t prohibit or restrict the use of short-term rentals unless they can prove it’s in the best interests of residents. Some properties are also exempt from new regulations under a legacy rule. If you’ve been managing a short-term rental since before 2016, this may apply to you.

Tax requirements for Tennessee short-term rentals

If you manage or own a short-term rental in Tennessee, you’re required to pay income and business tax. Most local governments also impose levies. Any revenue you generate from your business activities is subject to federal income tax. You have to make quarterly estimated payments if you earn over $1000 per year. Tennessee expects any lodgings to pay business taxes if they

• Accept guests for 180 days or less
• Earn over $10,000 per year in a jurisdiction

You have to register with both the county and the city where you manage properties. Then you’re subject to their local rates. As the amount varies between regions, it’s best to check what you owe with the relevant authorities. You should calculate taxes based on the gross amount you charge guests. Include all fees for the rental such as damage deposits and cleaning services. If you’re the property manager, note that you’re always liable for collecting and paying the taxes. The responsibility only falls to the owner when they manage the business directly.

Popular Tennessee locations with short-term rental regulations

As short-term rental regulations differ across cities and counties, we’ll explore the rules for some of Tennessee’s most popular places in this section.

Nashville

The short-term rental industry has exploded in Nashville. Despite new regulations, it hasn’t lost momentum and there are now thousands of properties in the area. Nashville requires you to obtain a permit before listing properties. If you violate this law, you’ll be banned from operating a business for up to a year. There are two types of permits: owner-occupied and non-owner occupied. The first type is allowed everywhere but the second type is restricted in certain zones. The permit process involves

• Creating a floor plan of the property
• Submitting proof you’ve paid any taxes due
• Getting coverage for up to $1 million
• Informing the property neighbors
• Organizing an inspection
• Signing an affidavit
• Paying the $313 processing fee

Once approved, you should add a photo of your permit to any online listings. The document is valid for one year.

Knox County

You don’t currently need a permit to manage a short-term rental outside the city limits in Knox County. However, officials are currently debating whether to introduce new regulations. They’re reportedly looking to the City of Knoxville’s ordinance for inspiration.

Knoxville

Although smaller than Nashville, the city of Knoxville still attracts just as many tourists. The number of short-term rentals is steadily increasing. Knoxville regulates short-term rentals with the help of a company called ‘Host Compliance’. They track listings to identify businesses operating without a permit and accept complaints from residents. There are two types of permits:

• Owner-occupied in residential areas for $70 per year
• Non-owner-occupied in non-residential areas for $120 per year

Note that, despite the misleading name, the second type of permit is available for both primary and secondary residences. There are no restrictions on the number of days you can take bookings. However, if you have an owner-occupied permit, you must still live in your home full-time. You’re also only allowed two guests per bedroom. Knoxville is currently reviewing their rules surrounding accessory dwelling units such as converted garages or backyard cottages. They’re trying to decide how to protect the rights of residents while preventing developers from buying out all the properties.

Memphis

Memphis is one of the most recent cities to introduce regulations. You need to apply for a permit unless you already managed your short-term rental property before July 1st, 2023. There are also strict conditions on the grandfather clause. Owners and managers lose their exemption if they:

• Violate the regulations
• Transfer or sell the property
• Pause the business for 30 days or more

Permits cost $300 initially and $150 for renewals. To apply, you have to provide details about the property, arrange an inspection, and designate a contact person.

Franklin

Compared to many other cities, Franklin’s regulations can be quite prohibitive. There are zoning laws that restrict or outright ban short-term rental properties from many neighborhoods. Many areas require you to be the primary resident and require you to:

• Live there for an average of 21 days per month
• Register for schools, elections, and driver’s licenses using the address
• Receive post at the property

Franklin also caps the number of guests at ten and prohibits you from serving food or drinks to them.

Sevier County

10 million visitors come to Sevier County each year according to the local tourism board. However, given the increasing rates, it might not be the most lucrative option for investors. The local government recently voted to pass a bill that classified short-term rentals as commercial properties, which makes them subject to a 40% tax. Sevier County has also introduced an annual permit with a mandatory safety inspection. They cost $250 for any property that hosts 12 guests or less. If you can go over this limit, it’s an extra $25 per person. As the program only started on January 1st, 2024, inspections will take place after March when the city government has processed all the applications. If you fail, you’ll get a list of adjustments to make and then you can reapply.

Gatlinburg

Deep in the heart of the Smoky Mountains, Gatlinburg is made for getaways. The city requires property operators to follow all the State directives and obtain a document called a ‘Tourist Residency Permit’. You can contact the local office by email or phone to make an application.

Pigeon Forge

Nearby Pigeon Forge has just as much to offer as Gatlinburg. However, despite the two cities’ proximity, it has a different set of regulations. Pigeon Forge has three types of permit:

• Owner occupied: Your primary residence
• Non-owner occupied: Your primary and secondary residence
• Unoccupied: Only your secondary residence

There are restrictions on the third type: You’re only eligible if your property is unoccupied when no guests are there. You can also only apply it to one unit in your building. All types of permits cost $300 for the first year and $100 for renewals. If you’re found operating without the right documents, you get a $50 fine.

Chattanooga

Surrounded by mountains and waterways, Chattanooga attracts its fair share of tourists. The local government has recently tightened regulations to manage the city’s growing number of rentals. There are two types of permits:

• Homestay for primary residences at $250 per year
• Absentee for secondary ones at $500 per year

You must stay at your property for at least 183 days a year to qualify for the homestay permit. Chattanooga also has zoning laws that apply to both types of permits. If you’re considering a specific area, you can check what’s allowed here.

Resources

• Tennessee General Assembly: Short-Term Rental Act
• Tennessee Department of Revenue: Sales and Use Tax Notice
• Nashville: Short-Term Rental Property Permit Information
• 10 News: Short-term rentals could soon see regulations after big party in East Knox County
• City of Knoxville: Short-term rental FAQs
• 10 News: Knoxville City Council passes ordinance on first reading easing ADU rules while preserving owner-occupancy rule
• 10 News: Airbnb rentals taxed as commercial properties
• Memphis Commerical Appeal: City of Memphis to require permits
• Franklin: Short-term rental FAQ
• Sevier County: Short-term rental unit inspection program
• Gatlinburg: Overnight rental info
• Smoky Mountain Vacation Lodging Association: Ordinance 1065
• Chattanooga: Short-term vacation rental