Airbnb Rules in Tennessee | Airbnb Laws, Taxes, and Regulations

In different markets, short-term rentals make for incredibly versatile investments. Renting out your vacation rental property on Airbnb or any other popular OTA can be a sure-fire way for hosts and property managers to earn a substantial revenue. According to the Airbnb newsroom, Host income is on the rise, with new data for 2021 confirming the typical US Airbnb host earned $13,800 - an increase of 85% over 2019 stats! but remember, these figures vary greatly depending on location and demand.

As exciting as the idea of an Airbnb venture is and as lucrative as the income is, there are a few things you need to consider before getting started. Below are some preliminary tips

1. Choosing an appropriate rental property
2. Property Location, Size, and Type
3. Airbnb Performance in the selected City / Town / State or Country.
4. Understanding what your Airbnb competition is
5. Airbnb Demand in the locality
6. Researching the KPIs
7. HOA Regulations
8. Short term rentals laws, rules, and regulations

Before you hunt for real estate - first find out if Airbnb is legal in the chosen location. Taking this step is absolutely imperative before scoping the city for properties and then discovering you are not allowed to conduct a Short term rental or worse yet that you have to live on the property and/or rental arbitrage is not permitted.

We are heading to the Southeast-end of the United States of America today to learn more about Airbnb rules and regulations for Tennessee and the tax implications for Short term rentals.

Discover Tennessee

The state of Tennessee is located in the Southeastern region of the United States. As the 16th most populous state in the country and one of the largest, Tennessee is bordered by eight states, including Nashville, Tennessee's largest city and its capital. The state’s second-largest city is Memphis, which is also the home of the Beale Street Music Festival.

Along Tennessee's eastern border, which stretches 440 miles to the banks of the Mississippi River, lies the Great Smoky Mountains National Park, the most visited park in the United States, and generates the most significant amount of tourist traffic to Tennessee. A plethora of attractions and an unmatched natural heritage await visitors in the 42,145 square miles of scenic beauty and diversity that this state offers.

Tourism in Tennessee

The state of Tennessee is the 44th most visited state in the country and is the largest state by area. It is also the 13th most populous state, with over 8 million residents. It is also famous for being the only state where you can get frostbite and a sunburn on the same weekend!

From east to west, Tennessee restaurants are famed for southern comfort food that feeds your soul, farm-to-table eateries, and award-winning cuisines. World-class festivals, endless music, and friendly people are part of living in this beautiful state.

U.S. Travel Association shows tourism in Tennessee hit a record-high $23 billion in domestic and international travel spending in 2019, marking a decade of consecutive growth. Tennessee also saw 126 million domestic person stays in 2019, up 5.7 percent from 119 million in 2018.

State tourism officials state millions come to Tennessee every year for the music, the nightlife, and the energy of the cities. Tennessee tourism generated $16.8 billion in domestic and international travel spending in 2020. As the state’s largest employer, tourism keeps Tennessee’s economy humming, and it also provides thousands of jobs. It’s easy to see why so many people choose to invest in an Airbnb in Tennessee. It not only provides you with an income stream, but it also opens up opportunities to meet new people and experience a different side of the state.

A report for the Tennessee Department of Environment and Conservation said that in 2021, Tennessee state parks saw about 39 million visitors, making up an economic impact for Tennessee of $2.1 billion.

How is a Short-Term Rental Defined in Tennessee?

“A Short Term rental unit is a residential dwelling that is rented, either in full or in part, for less than 30 continuous days. This includes, but is not limited to, a cabin, house, condominium, or apartment. A Short term rental unit is not a hotel or a bed and breakfast establishment.”

If the owner of the property uses a management company to provide vacation lodging services, then the management company must register for and collect the sales tax accordingly.

Airbnb Rules and Regulations in Tennessee

In Nashville and Davidson County, the law requires that anyone wishing to rent a property on Short Term Rental Property websites such as Airbnb, VRBO, or Booking.com must receive a permit from the Metro Codes Department prior to listing.

There are two types of Short term rental Property permits in Nashville:

• Owner-occupied
• Non-owner occupied

New non-owner occupied STRP permits (often investor-owned properties) are only permitted in certain non-residentially zoned areas, as listed in the District Land Use.

How to Apply for Short Term Rental Property Permit

Short term rental Property permits require several steps. You can greatly reduce delays and repeated trips to the Development Services Center by being prepared before you meet with a zoning examiner.

Note: You will not be eligible to apply for a permit for one year if you list a property or unit online until you have received a permit

• Checklist for Owner Occupied Short term Rental Property applications
• For new Short term Rental Property permits and permits issued after 11-18-20, refer to Substitute Ordinance No. BL2019-79 for advertising requirements.
• Checklist for Not-Owner Occupied Short term Rental Property applications

Notification of Process Change effective March 1, 2022

“In an effort to streamline the process for obtaining a Short term rental permit, and in order to continue protecting the health and safety of Short Term rental tenants, effective March 1, 2022, the Nashville Fire Marshal’s office will no longer conduct inspections on single and two-family homes.

Instead, Short term rental permit applications in these homes must include a certification from a state-licensed architect, engineer, or home inspector that the home complies with Metropolitan Code of Laws § 6.28.030.A.5.b and § 6.28.030.B.5.b.”

• No permit will be issued without this certification.
• This certification requirement extends only to single and two-family homes.
• Multifamily structures will still require inspection by the Fire Marshal.
• The Short term Rental permit application process will remain otherwise unchanged.

Useful Links:

1. Verify an Architect of Engineer license: Architects and Engineers
2. Verify a Home Inspector license: Department of Commerce and Insurance Administration License Roster Search
3. Single and Two-Family Dwelling Inspection Guidelines

Zoning Laws

Nashville’s zoning ordinance regulates the property owner’s use of his or her property. Consult Title 17 of the Metropolitan Code to understand the restrictions in your zoning district. Section 17.16.250(E) of the Metro Code, in particular, allows short-term rental properties as an accessory use in all residential zoning districts.

Short Term Rental Property Ordinance

Nashville has a special ordinance that regulates Short Term rental properties, Ordinance 2014-951. It is important to read, review, and understand this regulation in order to comply with its requirements. In particular, a permit must be obtained from the Metro Codes Department annually.

How to include your STR License in your Airbnb Property Listing

Your Short Term rental license number can be included as follows :

Go into,

1. Manage Listing >
2. Calendar and More >
3. Detailed Description.
4. In the “Other Things to Note” field, type in your license number following the acceptable license format for Nashville.

Business Registration and Sales Tax in Tennessee

Metro Nashville and the State of Tennessee require property owners to obtain a business license and to collect other state and local taxes.

According to the Tennessee Department of Revenue,

“Overnight rentals of vacation lodging by property owners for 180 days or less are subject to business tax. Overnight rentals of vacation lodgings are subject to business tax. To the extent applicable to this notice, vacation lodging means cabins, cottages, chalets, condominiums, houses, or individual rooms that are rented out by property owners or property management companies for vacation purposes.”

• For business tax purposes, a rental that lasts between one and 180 days is an overnight rental. Any rental for more than 180 days is not subject to business tax.

• A permit applicant must provide proof of payment of all taxes due, including property taxes and, for permit renewals, all applicable room, occupancy, and sales taxes.

• Suppose the owner of the property uses a management company to provide overnight rentals of vacation lodgings. In that case, the management company, rather than the owner, must pay the business tax on the gross receipts from the rentals. If no property management company is used, the owner must pay the business tax.

Provider of Overnight Rentals of Vacation Rentals: Tax Classification

• For business tax purposes, every taxpayer must register under a business tax classification and pay the tax rate prescribed by the law for that classification.
• A taxpayer’s classification is determined by its dominant taxable business activity.
• A provider of overnight rentals of vacation lodgings is providing a service.
• Providers of services are under Classification 3.

Business Tax

The amount of business tax due must be calculated on the gross receipts from the overnight rental. The gross receipts subject to business tax should include all fees collected for the rental, as well as any other money that a consumer must pay in order to rent the accommodations (e.g., non-refundable pet deposits, required cleaning fees, property damage protection fees, etc.).

Property tax information is available online at the Metropolitan Trustee’s office.

County and City Business Tax Registrations in the Jurisdictions

• A property owner or management company providing overnight rentals of vacation lodgings must have a county business tax registration for each county in which it has overnight rental properties and a city business tax registration for each city in which it has overnight rental properties.
• The owner or management company will be subject to business tax at the local rate for the jurisdiction in which each overnight rental property is located.
• A property owner or management company registering for business tax may submit a single registration form for each jurisdiction in which it has properties.
• The taxpayer will register for each jurisdiction under the location address of one of its overnight rental properties in that jurisdiction.
• The taxpayer must provide their business mailing address on the registration form.
• The taxpayer needs to file one business tax return for each registration and has to pay the business tax for all of its overnight rental properties in that jurisdiction under the registration for that jurisdiction.
• For Tax registration information log onto: https://www.tn.gov/revenue/taxes/business-tax/registration-and-licensing.html

Requirement for Filing and Registration

A provider of overnight rentals is required to register and file for business tax if its taxable gross receipts are $10,000 or more in each jurisdiction in which it does business. That means that a property owner or management company will not be subject to business tax in any city and/or county where its total rental property receipts in that city and/or county are not at least $10,000.

Hotel/Motel Tax

The City of Nashville imposes a hotel/motel tax which must be collected under the terms of the Short Term Rental Properties Ordinance. The state of Tennessee also imposes a sales tax that must be collected.

Other Rules

Additionally, it is important to understand and follow other contracts or rules, such as leases, condo board or co-op rules, and homeowners association rules. Make sure you read your lease agreement and ask your landlord if you have any questions.

Key Takeaways

Short term rental platform Airbnb has already established itself as a leading player in Tennessee, and it's easy to see why. You can share your home with a multitude of travelers through Airbnb, whether you're renting out a cozy apartment for a short visit or a large home for a family vacation. Regardless of whether you're in downtown Nashville or a quiet country road, you can gain an unparalleled experience while earning a passive income or starting a full-time Airbnb business.

Knowing the laws in your city, county or state is important when deciding whether or not to become an Airbnb host. We have provided some links in this article that may assist you in better understanding Tennessee’s laws and regulations. Hopefully, it will give you a good foundation for understanding your local regulations.

Alternatively, contact a local lawyer or tax professional for any further questions or queries, or contact Metro Codes, Metro Finance, or other city or state agencies directly.