Tennessee vacation rental tax guide

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NOTE: The outbreak of COVID-19 (caused by the coronavirus) may have impacted vacation rental tax filing due dates in Tennessee. Please consult your local tax authority for specific details. For more information, visit our ongoing coverage of the virus and its impact on sales tax compliance.

Airbnb and HomeAway/Vrbo have changed the way vacationers travel. More and more guests are choosing to rent private homes rather than book hotels. With a bounty of popular destinations including Nashville, Memphis, Dollywood, and Graceland, the Volunteer State offers prospective short-term rental hosts the opportunity to bring in extra income and meet new people.

But new income opportunities bring new tax implications. Like hotel and B&B stays, short-term rentals in Tennessee are subject to tax. Tax authorities require short-term vacation rental hosts to collect applicable short-term rental taxes from their guests and remit them to the proper authorities.

Failure to comply with state and local tax laws can result in fines and interest penalties. These may not catch up with vacation rental operators in the short term, but the sharing economy is under increased scrutiny so it’s important to address compliance before tax authorities address it for you. 

Avalara  MyLodgeTax has put together this guide to help you comply with Tennessee short-term rental tax laws. For more information on the tax rates and jurisdictions that apply to your rental’s specific location, use our lodging tax lookup tool.

No short-term vacation rental tax guide is a substitute for professional tax advice. Consider this an asset to help you understand and prioritize your vacation rental questions and concerns. Questions pertaining to specific situations or out-of-the-ordinary conditions are best solved with a certified tax professional familiar with Tennessee tax laws.

Short-term rental tax basics

When you start operating a short-term rental, while you might not have experience with lodging taxes, you’re probably familiar with income tax. It’s important to understand the difference between the two.

Income tax is reported and paid annually to the federal government and many state governments on “taxable” income, which is income after allowed expense deductions. You pay this tax directly to the government.

Lodging tax on a short-term rental is a percentage of the cost of your guest’s stay that’s added to the price of the bill. The guest pays the tax, but you’re responsible for collecting the tax and paying it to the proper tax authority.
 


What’s the definition of “short-term rental” in Tennessee?

For tax purposes, short-term rentals in Tennessee are defined as reservations of less than 90 continuous days.


Who’s required to collect and file taxes on short-term rentals in Tennessee?

If you collect payment from short-term guests renting out an apartment, house, or other dwelling, you’re likely responsible for collecting, filing, and remitting short-term rental tax to Tennessee tax authorities.

If you use a management company to provide short-term rental services, then the management company is responsible for short-term rental tax compliance. If an online short-term rental platform such as Airbnb collects all lodging tax on your behalf, then the platform files the tax to authorities for you.
 


Location is key to compliance

The location of your rental is a crucial piece of information for short-term rental tax compliance. Your address determines which tax jurisdictions you’re required to report to, which taxes you need to collect, and your tax rates. 

Use our lodging tax lookup tool to get a tax report specific to your Tennessee address. The report includes the estimated total tax rate to collect from guests, number of required registrations, number and frequency of returns per year, and minimum number of rented days to qualify as a taxable stay.

It should be noted that tax rates and the rules governing them change frequently. Please consider your tax rate report to be informative rather than authoritative.

Registering with state tax authorities

Before you can begin collecting taxes on your short-term rental in Tennessee, you’re legally required to register with the Tennessee Department of Revenue. You’re required to register online and once you’veregistered, you’ll receive instructions on filing your taxes.

 

Do I need to form an LLC?

In Tennessee, you don’t need to form an LLC to register with tax authorities.

 

Local short-term rental regulations

Short-term rental operators in Tennessee should be aware of the local regulations that apply to them, including rules covering:

  • Legality
  • Permits, licenses, and registration
  • Zoning
  • Advertising
  • Neighborhood notification
  • Building and housing standards

Homeowner Associations (HOAs) located in Tennessee may also have specific rules regarding vacation rentals. As a member, it’s your responsibility to be aware of the association’s policy. It’s important to review this information to understand any restrictions or limitations on short-term vacation rentals.

Other regulations associated with leases/subletting or condo/co-op rules may apply to your situation. A good place to start is by reviewing your signed lease and speaking with your landlord or property manager.

Collecting short-term rental tax

Once you’re registered with tax authorities, you’re ready to start collecting rental tax, which you’ll add to your guest’s bill when they pay for their stay.

 

Which taxes apply to Tennessee short-term rentals?

In Tennessee, short-term rentals are subject to state and local sales tax and may be subject to other local taxes.

Tax name File and remit to
State tax Tennessee Department of Revenue
Local sales tax Tennessee Department of Revenue
County or city lodging tax Local tax authority

 

Tax rates

Before you can begin collecting short-term rental taxes, you need to know the correct rate to charge. Rates can and do change frequently, so it’s critical to make sure you have the latest rate to avoid over- or undercharging your guests and running into compliance issues. 

Our lodging tax lookup tool can give you a rate report specific to your Tennessee address. The report includes the estimated total tax rate to collect from guests, required registrations, frequency of returns per year, and minimum number of rented days to qualify as a taxable stay.

 

What charges are taxable?

Tennessee imposes lodging tax on the sales price of short-term rentals. This includes all fees that a guest must pay for the rental, such as nonrefundable pet deposits, required cleaning fees, property damage protection fees, etc.

 

What happens when my short-term rental marketplace (such as Airbnb or HomeAway/Vrbo) collects taxes for me? 

Before collecting any short-term rental taxes from your guests, you need to be aware of whether any taxes have already been collected for you. Some vacation rental markeplaces collect Tennessee short-term rental taxes for you when the listing is booked, but not all do. If a marketplace collects all your tax for you, you don’t need to file state sales tax returns in Tennessee. However, if you also rent directly or through other vacation rental platforms that don’t collect the tax on your behalf, then you must register and file sales tax returns.

Platforms regularly add new jurisdictions to the list of locations where they collect lodging taxes on hosts’ behalf. Check with your platform for the latest information on which taxes they collect in your jurisdiction.

 

Are guests ever exempt from taxes?

There are situations in which you aren’t required to collect lodging taxes in Tennessee. For example, a guest who rents for a long term rather than a short term is exempt from short-term lodging taxes. Also, purchases by government entities and nonprofit organizations are exempt from state sales tax.

Filing short-term rental tax returns

After you’ve collected taxes from your guests, it’s time to file your tax returns with the Tennessee Department of Revenue. In Tennessee, you must file returns online. In order to file, you’ll need to enter information on how much you charged for your rentals. You’ll also need to pay the tax amount due. The Tennessee Department of Revenue allows credit card payments, but may charge a fee.

Take the time to double-check your returns prior to submitting. Simple mistakes such as typos, missing signatures, and incorrect tax information can lead to unwanted delays.

 

When do I need to file my returns?

You’ll be assigned a filing frequency and due dates when you register with the Tennessee Department of Revenue. For state and local sales tax returns, due dates are as follows:

Filing frequency Due date
Monthly Due the 20th day of the month following the end of the filing period
Quarterly Due the 20th day of the month following the end of the filing period
Annually Due the 20th day of the month following the end of the filing period

 

I didn’t rent my property during this filing period. Am I still required to file a tax return for my short-term rental with the Tennessee Department of Revenue?

Yes. Short-term rental operators registered with the Tennessee Department of Revenue are required to file returns each assigned filing period, regardless of whether there was any short-term rental income or any short-term rental taxes were collected. Such returns are commonly known as “zero dollar returns.” Local tax authorities may have their own requirements.

 

Are there penalties for filing taxes late?

Whether you choose to offer short-term rentals through a marketplace like Airbnb or directly to the consumer, you open the door to tax liability at the state and local level. As tax revenue is a major source of local funding, tax authorities are becoming more aggressive in their efforts to identify individuals and businesses not in compliance with tax laws. Failure to register with tax authorities and file short-term rental tax returns in Tennessee on time may result in late fees, interest payments, and in extreme cases, legal action.

 

I’ve been offering short-term rentals without collecting lodging tax. What options do I have?

If you’re already operating a short-term rental but you’re not collecting short-term rental taxes, you may be in violation of Tennessee tax laws. Take the time to review your legal responsibility (with a tax professional, if necessary) and understand the risk of continuing to not collect tax.

Short-term rental hosts in Tennessee may be able to take advantage of a voluntary disclosure agreement (VDA). A VDA offers an opportunity for hosts to proactively disclose prior period tax liabilities in accordance with a binding agreement with the Tennessee Department of Revenue. VDAs are offered to encourage cooperation with state tax laws and may result in some or all penalty and interest payments being waived.

 

Are there options for outsourcing lodgings tax filing?

Yes. Numerous short-term rental hosts in Tennessee file several state and local lodging tax returns every year. For many, filing solutions such as MyLodgeTax can relieve this burden.

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