Tennessee short-term rental rules for owners

Tennessee is often listed among the states that protect short-term rentals from local bans. That is only half true, and the half that is missing matters for anyone buying today. The state's law protects rentals that already exist; it does not stop a city from closing the door to new ones.

The Short-Term Rental Unit Act of 2018

The Act, in force since May 17, 2018 (Tennessee Code 13-7-601 and following), deals with what happens when a city or county bans or restricts short-term rentals. Its core rule is a grandfather clause: a property that was lawfully operating as a short-term rental before the local restriction took effect may continue under the rules that applied when it started. To qualify, the owner must show the unit was offered to the public as a rental and either held the required permit or, where none existed, remitted occupancy taxes for at least six of the previous twelve months.

That protection is personal to the owner and the use, and it can end. It lapses when:

• the property is sold or otherwise transferred;
• short-term rental use stops for 30 consecutive months;
• the unit accumulates three or more violations of general local laws with no appeal left.

For an investor, the consequence is blunt: a grandfathered rental does not pass to a buyer. You acquire the house and whatever the current ordinance allows, not the seller's legacy rights.

What local governments can do

Cities and counties may run permit systems, suspend units operating without a valid permit, and shut down units after three exhausted violations. Local zoning therefore governs new rentals almost entirely. Associations and condominium boards are free to restrict rentals through their own documents; the Act expressly leaves them alone. Bills seeking broader state preemption have been filed in recent sessions without becoming law, so as of September 2026 the 2018 framework still stands. For owners, that means the relevant rulebook is usually the county or city code, read in its current version.

Taxes: state, local and occupancy

The Tennessee Department of Revenue treats short-term rentals as taxable lodging:

• Sales tax at the 7% state rate plus a local rate that varies by county, on stays of under 90 continuous days. The base includes cleaning and pet fees.
• Local occupancy tax, set by the city or county, generally paid directly to that government for direct bookings.

Marketplace facilitators above the state threshold collect and remit sales tax on your platform bookings. For stays of less than 30 days booked through a short-term rental marketplace, local occupancy tax is remitted to the Department of Revenue rather than locally. Owners renting directly register and file themselves, so check which of your channels are covered.

Our Tennessee markets

Open

• Gatlinburg & Pigeon Forge: the gateway to the Great Smoky Mountains and one of the country's most established cabin markets. Sevier County is welcoming to rentals but requires permits and inspections, and zoning still matters street by street; Pigeon Forge treats some single-family zones differently.
• Tennessee Area: smaller towns, lake country and rural counties where local rules are light.

Registration

• Memphis: a municipal permit and occupancy tax, with no quota and no owner-residency requirement.

What is missing says as much. Nashville, Chattanooga and Knoxville restrict non-owner-occupied rentals in most residential zones, and those rules, adopted locally, are exactly what the 2018 Act allows. We do not currently treat them as realistic investment markets for whole-home rentals in residential neighborhoods; commercial and mixed-use districts are a different conversation that needs an address-level check.

Our advice

In Tennessee, always ask two questions about a property: what does today's zoning allow for a new permit at this address, and does the seller's current rental status depend on grandfathering you will not inherit? In the mountain counties, also look closely at road access, septic capacity and occupancy limits, since permits and inspections increasingly turn on them. If you own a property here or are weighing one, we study every request and tell you honestly whether and how we can help.