Short-Term Rental Taxes in Tennessee: The STR Investor's Complete Guide

Tennessee is one of the fastest-growing STR markets in the country, driven by two very different travel demand drivers: the Great Smoky Mountains (the most-visited national park in the U.S.) and Nashville (Music City, with a thriving urban short-term rental market). Both markets generate excellent revenue for STR investors — and the combination of no state income tax and full federal depreciation benefit makes Tennessee a strong tax picture.

Tennessee State Tax Landscape

Tennessee eliminated its last remaining individual income tax (the Hall Income Tax on investment income) effective January 1, 2021. Individual Tennessee residents now pay zero state income tax on wages, rental income, business income, or investment income. Federal income taxes apply in full, but the absence of state income tax means Tennessee STR investors are among the best-positioned in the country from a tax efficiency standpoint.

Tennessee does have a corporate income/franchise tax for entities, but individual STR investors operating through a disregarded LLC or personal ownership are not subject to corporate taxes on their rental income.

Tennessee Sales and Occupancy Taxes on STRs

While there's no income tax, Tennessee STR operators do collect and remit: (1) Tennessee state sales tax of 7% on rental revenue; (2) Local occupancy taxes that vary significantly by jurisdiction.

The Smoky Mountains STR Market: Gatlinburg and Pigeon Forge

The Gatlinburg/Pigeon Forge/Sevierville corridor in Sevier County is one of the highest-density STR markets in the United States. Properties in this market feature consistently high occupancy rates (60–80%+ annually), strong average daily rates, and very short average booking windows — typically well under 7 days, which supports the STR tax loophole comfortably.

Smoky Mountains STR properties tend to have high personal property ratios: hot tubs, game rooms, home theaters, outdoor decks, and recreational amenities are standard in the market. This means cost segregation studies on Sevier County properties typically identify 25–35% of purchase price in 5-year and 15-year assets — toward the top of the range nationally.

Nashville STR Market

Nashville's STR market is predominantly urban condos and apartments catering to bachelorette parties, country music tourists, and convention attendees. Nashville has adopted a permitting system for STRs, limiting them in many residential zones to owner-occupied properties. Non-owner-occupied STRs face restrictions in many areas.

Investors acquiring Nashville STR properties should verify current zoning and permit availability before acquisition. The city has periodically tightened regulations. Properties in approved zones can be very lucrative — Nashville commands some of the highest nightly rates in the Southeast.

Tennessee STR Licensing

Tennessee requires STR operators to register with the Tennessee Department of Revenue for sales tax collection. Individual jurisdictions may have separate licensing requirements — Sevier County has its own STR registration, and Nashville requires a specific permit. Check both state and local requirements for your specific property location.