The state of Tennessee has always been one of the top U.S. locations to invest in an Airbnb property. The Great Smoky Mountains, the music scene, the rich culture, and the multiple tourist attractions bring millions of visitors every year. However, before starting a vacation rental business there, investors should familiarize themselves with Tennessee short term rental laws.
Tennessee is one of the few U.S. states that has statewide regulations. In addition, most cities have enacted their own rules to protect local communities and regulate the local housing market. In many locations, non-owner occupied short term rentals are severely restricted or altogether prohibited.
In this article, we'll cover what you should know about Tennessee short term rental laws, laws by city, different taxes and documents to expect, and more. However, always check with an attorney or your city government as these laws can and do change over time.
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Tennessee's definition of a short term rental
The state of Tennessee regulates short term rentals with the Tennessee Short-Term Rental Unit Act (SB1086), effective as of May 17, 2018. Within this Act, a STR unit is defined as a residential dwelling, including a single family dwelling or a unit in a multi family building, such as an apartment building, condominium, cooperative, or timeshare, that is rented wholly or partially for a fee for a period of less than 30 continuous days. This definition excludes hotels, tourist courts, tourist camps, tourist cabins, and motels.
Starting a short term rental business in Tennessee
When launching an Airbnb business in Tennessee, owners need to follow both state and city regulations. In specific, they need to comply with the following:
- County and city business licenses: Tennessee cities expect Airbnb hosts to hold a valid city and county business license. Obtaining the license is done after paying a small fee.
- City short term rental permit, license, or certificate: Most Tennessee markets issue short term rental licenses, permits, or certificates that are typically valid for one year. Applying for a STR license requires a city and county business license.
- Insurance: It is a statewide requirement to have liability insurance for a minimum of $500,000 unless the listing marketplace offers equivalent coverage.
- Zoning district restrictions: Most Tennessee cities and counties have strict zoning regulations. STR owners need to check them and ensure compliance prior to applying for a permit/license.
- Maximum occupancy: The majority of cities in Tennessee limit occupancy to two guests per bedroom and 12 guests per property.
- Health and safety regulations: Tennessee vacation rental investors need to follow state and local rules related to protecting the health and safety of guests, including but not limited to, providing smoke alarms, carbon monoxide detectors, and fire extinguishers.
- Fee payment: Applying for short term rental licenses/permits and business licenses requires paying fees that are typically around $500 total.
- Required paperwork: New Airbnb investors need to prepare a number of different documents including but not limited to personal ID, proof of ownership, proof of residency, site plans, floor plans, affidavits, and others.
Before listing a Tennessee property on Airbnb or another vacation rental platform, an investor needs to check out and understand state, county, and local short term rental laws and regulations. These are usually available on local authority websites. If there is anything unclear or information seems to be missing, consult with a local legal expert to ensure compliance. You can also work with an Airbnb manager who can not only explain vacation rental rules but also take full care of your investment property.
Owners need to be familiar with local regulations before starting an Airbnb business in Tennessee. If they fail to comply with requirements, they might need to pay hefty penalties or risk losing their license/permit altogether.
Short term rental licensing requirements in Tennessee
There are no statewide licenses or permits issued to short term rental properties in Tennessee. However, most cities in the state require owners or their agents to obtain a STR license, permit, or certificate. This is done by submitting an application to local authorities accompanied by a range of different documents. Necessary documentation and information often includes owner details, agent details, local contact details, insurance, proof of ownership, proof of residency, and others. In some cases, properties need to undergo an inspection.
In addition, Tennessee vacation rental owners need to have a county and a city business license before applying for a STR license. They also need to pay hotel occupancy and sales taxes.
License renewals for short term rentals in Tennessee
In the majority of Tennessee markets, short term rental licenses, permits, and certificates are valid for one year. Afterwards, they need to be renewed in order for operations to remain legal. Renewals require the submission of documents and paying an annual fee.
Required documents for Tennessee short term rentals
Tennessee city-level short term rental license and permit applications typically require you to submit the following documents:
- Personal ID
- Federal EIN
- Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN)
- City and county business license
- Proof of ownership
- Proof of residency
- Proof of payment of fees
The documents needed vary slightly from one Tennessee location to another, so check the exact requirements in your market before applying.
Tennessee short term rental taxes
Tennessee Airbnb property owners typically need to pay the following taxes:
- County and city room/hotel occupancy tax: Tennessee short term rental operators need to pay room or hotel occupancy tax at both city and county rates that vary from one location to another
- State and local sales tax: Airbnb hosts are responsible for collecting and remitting sales tax to state and local authorities which usually amount to 9.25%-9.75% in total
- Short term rental income tax: Vacation rental property owners need to pay income tax at federal and local rates
- Property tax: Owners have to pay property tax to state and municipal authorities
STR property owners can deduct multiple business operating expenses to reduce their taxable income. Eligible Tennessee short term rental tax deductibles include:
- Real estate depreciation (it's a good idea to conduct a short term rental cost segregation study to maximize benefits)
- Mortgage interest
- Mortgage insurance premium (MIP)
- Property tax
- Airbnb insurance
- Furnishing costs
- Property management fees
- Cleaning fees
- Marketing and advertising costs
- Accounting, legal, and other professional fees
- Property maintenance costs
- Home office and business travel expenses
While Tennessee short term rental investors have to cover a range of taxes, they can lower their tax burden by taking advantage of available deductions.
Statewide short term rental rules in Tennessee
Across the state of Tennessee, short term rental unit providers need to comply with the following requirements, as set in SB1086:
- Maintain liability insurance of at least $500,000 unless provided by the marketplace
- Have fire sprinklers, smoke alarms, and carbon monoxide alarms in the property
In addition, most Tennessee cities require operators to:
- Hold a valid city and county business license
- Collect and remit room/hotel occupancy tax
- Pay sales taxes
- Follow zoning laws
- Provide appropriate parking spaces
- Comply with maximum occupancy standards
- Ensure the presence of safety equipment
Violations to any state and city Tennessee Airbnb laws can lead to the revoking of licenses/permits as well as penalties and fees.
Short term rental laws by Tennessee city
In addition to the statewide Tennessee short term rental regulations, most cities have introduced their own rules in line with the state laws. According to SB1086, local governing bodies in the state of Tennessee cannot prohibit the use of property as a short term rental unit and restrict the use of or otherwise regulate a short term rental unit based on its classification, use, or occupancy.
However, local governing bodies can enact laws that regulate properties used as STRs with the purpose of protecting the public's health and safety by the least restrictive means. Because of this, some Tennessee cities do have rather strict and limiting rules.
Following are the Airbnb laws and rules in the most popular tourist destinations across Tennessee.
1. Nashville, Tennessee short term rental laws
The city of Nashville uses the Tennessee definition of a short term rental. To operate a short term rental property (STRP) in Nashville, owners must obtain a permit from the Metro Codes Department.
There are two types of STRP permits:
- Owner-Occupied STRP permit: This property is an owner-occupied residence or is located on a lot with an owner-occupied residence. Either an entire dwelling unit or any part of the unit including a minimum of one sleeping room and a bathroom should be rented to a single party of individuals. In single-family and two-family zoning districts, only one permit can be issued per lot.
- Not Owner-Occupied STRP permit: This property is neither owner-occupied nor located on a lot with an owner-occupied principal residence. Rentals are limited to a single party of individuals. New not owner-occupied permits are only issued as a use permitted with conditions (PC) in MUN and MUN-A, MUL and MUL-A, MUG and MUG-A, MUI and MUI-A, OG, OR20 through OR40-A, ORI and ORI-A, CN and CN-A, CL and CL-A, CS and CS-A, CA, CF, DTC North, DTC South, DTC-West, DTC Central, SCN, SCC and SCR zoning districts. They are not permitted in AR2A, R, RS, or RM zoned properties. Hosts need to refer to a Nashville short term rental zoning map to check which district their property is located in.
Applying for a Nashville short term rental permit requires the following documentation:
- Proof of payment of all due taxes
- Certified floor plan of the entire dwelling including all rooms with walls, doors, windows, and smoke detectors
- Proof of insurance covering homeowner's fire, hazard, and liability insurance for not less than $1 million per occurrence
- Notarized affidavit confirming all provided information is true and accurate
- Proof of notification of adjacent property owners
- Statement that operating an STRP does not violate HOA agreements or bylaws, condominium agreements, covenants, codes, and restrictions
- Two forms of identification showing proof of residence
- Initiation of a fire marshal inspection for multi family structures (3+ dwellings on the property)
- $313 permit fee
Permits expire 365 days after issuance and need to be renewed annually before the expiration date. They are non-transferable.
Nashville Airbnb hosts also need to comply with strict regulations including:
- All signs on the property being compliant with relevant regulations
- All occupants abiding by applicable noise restrictions and waste management provisions
- Properties meeting all applicable state and local building and fire safety codes
- No recreational vehicles, buses, or trailers being visible on the street or on the property
- No food being prepared or served to guests
- Principal renters being 21+ years of age
- Maximum occupancy being limited to two persons per bedroom plus an additional four persons for a maximum of 12 persons
- Not renting to more than one party at a time
- Not receiving compensation or remuneration for renting for less than 24 hours
- Permit holder being responsible for collecting and remitting all room, occupancy, and sales taxes required by state law or Metropolitan Code
- Posting the name and phone number of the local responsible party within the unit
In Nashville, the local hotel occupancy tax is 7% plus a nightly fee of $2.50, while the combined sales tax is 9.25%.
In general, Nashville short term rental laws can be rather prohibitive as they restrict non-owner occupied Airbnbs to certain zoning districts only, but qualifying areas could still bring significant profit as long as you implement your investment strategy right. Before buying an investment property to rent on a short term basis, confirm that it's located in an eligible area of the city.
2. Memphis, Tennessee short term rental laws
The city of Memphis defines a short term rental property as a structure or part of a structure that is used as a home, residence, dwelling, or habitable room rented to the same occupant for less than 30 consecutive days. This excludes hotels, motels, bed and breakfast establishments, and boarding houses. The Memphis short term rental laws are stipulated by Ordinance No. 5631, incorporated in Chapter 5 of the City Code of Ordinances.
Operating a Memphis Airbnb business requires a permit. Applying for a short term rental permit requires the following information:
- Maximum number of capacity per night
- Owner's name, address, phone number, and email address
- Responsible party's name, address, phone number, and email address
- Management company's name, contact, and phone number
- Site plan showing each unit and other structures and site features
- Proof of ownership
- Proof of insurance evidencing homeowner's fire, hazard, and liability insurance of no less than $1 million per occurrence
- Inspection by Memphis/Shelby County Code Enforcement
- Certification of compliance with all relevant rules and regulations
- $100 permit application fee
Memphis short term rental permits need to be renewed prior to expiration, which is 365 days after being issued, and the renewal fee is $50 per year. Permits are non-transferable. Some zoning restrictions might apply.
Vacation rental owners also need to comply with the following requirements:
- Have a five-pound fire extinguisher in each unit
- Have approved smoke alarms in all sleeping areas
- Have approved carbon monoxide detectors on every habitable floor
- Not provide food and beverages
- Principal renters must be 18+ years of age
- Not receive compensation or remuneration for occupancy for a period of less than 24 hours
- Post the name and phone number of each responsible party
The Memphis room occupancy tax rate is 5%, and the total sales tax rate is 9.75%.
In sum, Memphis short term rental regulations allow non-owner occupied Airbnbs and do not impose many restrictions. This regulatory environment makes the city a potentially great market for starting a vacation rental business in Tennessee.
3. Gatlinburg, Tennessee short term rental laws
The city of Gatlinburg refers to short term rentals as tourist residences, and they are defined as dwellings used for overnight and/or weekly rental to tourists in the City Municipal Zoning Ordinance.
Starting a Gatlinburg Airbnb business requires applying for a tourist residence permit by submitting the following:
- Owner's name, address, and phone number
- Rental unit name and location
- Number of stories, bedrooms, and parking spaces
- Maximum number of occupants
- Square footage of the building
- Rental agent's name, address, and phone number
- Application fee of $200 for up to two bedrooms + $75 for each additional bedroom
As of January 1, 2024, all short term rentals in Sevier County, where Gatlinburg is located, outside of city limits need to have an annual permit and undergo an yearly safety inspection, under the newly introduced Short-Term Rental Unit Inspection Program. Inspections cover various safety items including but not limited to:
- Fire extinguishers
- Smoke alarms
- Escape routes
- Carbon monoxide detectors
- Electrical safety
- Charcoal grills
- Gas grills
- Stair handrails
Gatlinburg short term rentals are subject to zoning regulations. For instance, they are not allowed in the R-1A Low Density Residential and R-2A Medium Density Residential zoning districts.
In Sevier County, including Gatlinburg, there is a 3% lodging tax and a total sales tax of 9.75%.
All in all, Gatlinburg short term rental rules allow investing in a non-owner occupied property as long as you meet the zoning district restrictions. Thus, make sure to check these local regulations before buying a property to rent out on Airbnb.
4. Chattanooga, Tennessee short term rental laws
The city of Chattanooga defines a short term vacation rental (STVR) as a structure containing no more than five bedrooms which is used, advertised, or held out to the public in part or in its entirety as a place where sleeping accommodations are supplied for pay on a daily or weekly basis for no more than 30 days for overnight stay. Short term rentals in multi-family dwelling units should not exceed 25% of the total number of units. Hotels, rooming houses, bed and breakfasts, and boarding houses are excluded from this definition. Chattanooga STVRs are governed by Ordinance No. 13981.
Chattanooga distinguishes between two different types of short term vacation rental occupancy:
- Homestay: This STVR is the primary residence of the applicant, which means that they reside there for at least 183 days a year. These vacation rentals are allowed in zones where residential uses are allowed within the existing Overlay including zones C-2, C-3, C-4, UGC, CC, IX, RF, RV, CX-Commercial and SH.
- Absentee: This STVR is not the primary residence of the applicant. These Airbnb properties are allowed only within zones C-2, C-3, C-4, UGC, CC, IX, RF, RV, CX-Commercial and SH. Moreover, they are only allowed within a parcel that is at least 20 acres with common ownership that allows for residential uses.
To run a vacation rental business in Chattanooga, you must start by applying for a short term vacation rental certificate. Submitting an application requires:
- Information about the owner
- Different forms of ID
- Information about the property
- Application fee of $250 for homestay and $500 for absentee
Certificates are valid for one year, and the renewal fee is $250 for a homestay STVR and $500 for an absentee STVR.
Chattanooga short term rental laws also require owners to comply with multiple regulations related to:
- Lack of uninhabitable structures such as garages, barns, and sheds
- Functioning smoke detectors
- Egress (at least two means)
- Emergency and rescue openings
- Guardrail
- Handrails
- Smoke alarms
- Carbon monoxide alarms
- Fall protection
- Minimum bathroom fixtures
- Cold and hot water availability
- Kitchen and bathroom receptacles
- Swimming pool protection
- Spa/jacuzzi protection
- Heating, ventilation, and air conditioning
- Fire escape plan
- Compliance with applicable zoning, building, health, and life safety laws
- Lack of on-site signage
- Maximum five bedrooms per dwelling unit
- Maximum occupancy of two persons per bedroom plus two additional persons
- No compensation or remuneration for occupancy for a period of less than 24 hours
- Collecting and remitting applicable room, occupancy, and sales tax
- Adequate on-site parking
- Noise restrictions
- Available waste management provisions
- Posting of the owner's name and phone number within the rental
- Posting of ownership and contact information on a public website
In Chattanooga, just like in the rest of Hamilton County, the room occupancy tax is 4%, and the sales tax is 9.25%.
In conclusion, buying an investment property to rent out on a short term basis in Chattanooga is restricted by zoning codes which might affect occupancy rates and profit. But as long as you are able to navigate these restrictions and identify an eligible area with strong performance, Chattanooga can be an excellent place to invest in an Airbnb property.
5. Knoxville, Tennessee short term rental laws
The city of Knoxville defines short term rentals in the same way as the state of Tennessee. In brief, these are properties that are rented for overnight lodging for less than 30 days at a time that exclude certain types of dwellings and commercial operations.
Knoxville Airbnb property operators need to have a short term rental unit permit. There are two types of permits:
- Type 1 Operating Permit: These are owner-occupied rentals in residentially zoned districts. They can be rented both when the owner is on site and away.
- Type 2 Operating Permit: These are non-owner occupied rentals in non-residentially zoned districts. A tenant can apply for a Type 2 permit as long as they have permission from the owner. A person can have up to 2 Type 2 permits.
To apply for a permit, Knoxville short term rental operators need to submit:
- Short Term Rental Operator Permit Application
- Short term rental unit (STRU) location and information
- Owner's name, address, phone number, and email
- Operator's name, address, phone number, and email
- Contact person's name, address, phone number, and email
- Proof of ownership
- Proof of residency if applicable
- Site plan
- Map of properties notified using the Neighborhood Notice form
- Proof of property's good standing
- Information about the number of smoke alarms, carbon monoxide alarms, and fire extinguishers
- City and county business license, each available for a $15 fee
- Completed Life Safety Compliance Verification Form
- Application fee of $70 for Type 1 and $120 for Type 2
Permits need to be renewed on an annual basis, and the renewal fee is $50 for both types.
Knoxville Airbnb hosts need to comply with rules covering:
- Parking
- Trash disposal
- Quiet hours
- Neighborhood notification
- Maximum occupancy of no more than 12 persons
- Availability of smoke alarms, carbon monoxide alarms, and fire extinguishers
- Holding a business license
- Paying occupancy and sales tax
The Knoxville hotel occupancy tax is 3%, and the total sales tax is 9.25%.
To sum up, non-owner occupied short term rentals are severely restricted in Knoxville in terms of permitted zoning districts. Still, there might be viable options for investors who know how to find Airbnb properties for sale in challenging markets.
6. Pigeon Forge, Tennessee short term rental laws
The city of Pigeon Forge defines short term rentals as rentals of residential units or dwellings for less than 30 consecutive days. Ordinance No. 1065 regulates STRs in zone R-1. Residences located in R-1 District can be used as short term rentals only if they were operating as short term rental on or before August 13, 2018.
In Pigeon Forge, all vacation rentals require a short term rental unit permit. There are three types of permits:
- Owner Occupied: This refers to the owner's principal residence being used as a STRU and excludes duplexes. A person can hold only one permit of this type. The owner does not need to be present during rentals.
- Non-Owner Occupied: This type of permit can be issued to an owner or a lessee of the property. A lessee needs to have the owner's approval.
- Unoccupied: This refers to premises that are occupied only when used as a short term rental unit. The permit can be held by the owner or an owner's agent, such as a property manager.
To apply for a Pigeon Forge short term rental unit permit, operators need to submit the following:
- Permit application
- Property address and information
- Owner's name, address, phone number, and email
- Applicant's name, address, phone number, and email
- Local contact person's name, address, phone number, and email
- Hosting platforms and websites
- Proof of ownership
- Proof of residency
- Site plan
- Copy of the city and county business license
- Completed Life Safety Compliance Verification Form
- $300 permit fee
Permits are valid for one year and are non-transferable.
Pigeon Forge vacation rental owners also need to comply with the following requirements:
- Maximum occupancy of two guests per bed and two beds per room for a total of no more than 12 persons per property
- Signage showing the operating permit number
- Paying hotel occupancy privilege tax and sales tax
- Presence of smoke alarms, carbon monoxide detectors, and fire extinguishers
Similar to other locations in Sevier County, Pigeon Forge short term rentals outside city limits need to undergo an annual short term rental unit inspection.
In Pigeon Forge, the city hotel occupancy tax rate is 2.50%, while the total sales tax is 9.75%.
Finally, Pigeon Forge short term rental rules are rather limiting as new investment properties are restricted to certain zoning districts only. Once again, interested investors can consult with a local agent or Airbnb manager to find a way to make a legal investment with a strong potential in this Tennessee market.
Do Airbnbs do well in Tennessee?
Statewide and city-level Tennessee short term rental regulations govern the vacation rental industry in one of the best U.S. states for Airbnbs. While state laws prevent the prohibition of this type of business by local authorities, many cities have limiting rules that hosts need to be familiar with before buying an investment property to rent out on a short term basis.
Although Tennessee cities have various local regulations, the state continues to be a top choice for short term rental investments as a result of the expanding tourism industry, the year-round demand, and the relatively reasonable vacation rental rules in many areas. Ready to get started with your Tennessee Airbnb investments? Contact one of the best Airbnb property management companies to learn more about investing in Tennessee!
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