Tennessee STR Laws in 2026. A Market-by-Market Guide for Investors in the Volunteer State

Tennessee’s Short-Term Rental Unit Act, signed in 2018, technically prevents cities from banning vacation rentals based on how a property is classified or used. In theory, that sounds like a preemption law. In practice, it leaves cities enormous latitude to regulate STRs through zoning, permitting, and health-and-safety requirements. The result is a regulatory patchwork where your compliance obligations depend almost entirely on which Tennessee ZIP code you are buying into.

I have reviewed more zoning codes than most people have unread emails, and Tennessee’s city-by-city approach is one of the more interesting puzzles in the Southeast. Nashville treats non-owner-occupied rentals like a privilege reserved for commercial corridors. Memphis barely blinks at investor-owned properties. Gatlinburg rolls out the welcome mat for cabin owners. And Chattanooga sits somewhere in the middle with a thoughtful (if somewhat bureaucratic) two-tier system.

This article provides general information and should not be construed as legal advice. Consult a qualified attorney in your jurisdiction for advice specific to your situation.

If you are considering Tennessee as an acquisition target in 2026, here is what the regulatory landscape actually looks like on the ground.

What the Tennessee Short-Term Rental Unit Act Actually Does (and Does Not Do)

The Short-Term Rental Unit Act (TCA 13-7-601 through 13-7-606, effective May 17, 2018) is often described as a preemption law. That description is only half right.

The Act does prohibit local governments from banning or restricting STRs “based on classification, use, or occupancy.” It also grandfathers any property that was operating as an STR before a local ordinance was enacted, meaning cities cannot retroactively shut down existing operators.

But here is the critical nuance that investors miss: the Act explicitly allows cities and counties to regulate STRs for “the protection of the public’s health and safety by the least restrictive means.” Tennessee courts have interpreted this broadly enough that cities can impose permitting requirements, zoning restrictions, occupancy limits, noise ordinances, parking rules, and safety inspections. Nashville’s complex zoning-based permit system, for example, exists entirely within the boundaries of what the Act permits.

There is also a legacy clause. Any ordinance enacted before January 1, 2014 that “expressly limits the period of time a residential dwelling may be rented” is grandfathered in, regardless of what the 2018 Act says. This is a narrow exception, but it matters in a few older Tennessee municipalities.

The bottom line: Tennessee is not Idaho or Indiana, where 2026 preemption laws genuinely strip cities of regulatory power over STRs. Tennessee gives investors a floor (your property cannot be outright banned for being an STR), but cities still control the ceiling. For a deeper look at how states like Idaho and Indiana are handling preemption differently, see our coverage of Idaho’s HB 583 and Indiana’s HEA 1210.

Statewide Tax Obligations Every Tennessee STR Operator Faces

Before diving into local rules, here is what every Tennessee STR operator owes regardless of location.

State sales tax: 7% on all rental income for stays under 30 days. This is non-negotiable and applies statewide.

Local sales tax: An additional 1.5% to 2.75% depending on the county. Combined with the state rate, you are looking at 8.5% to 9.75% in total sales tax before any occupancy taxes are added.

Local occupancy (hotel/motel) tax: This is where it gets interesting. Local jurisdictions set their own rates, and they vary wildly. Nashville’s Davidson County charges 6.25%. Sevier County (Gatlinburg, Pigeon Forge) charges a 3% county lodging tax. Memphis levies a 3.5% STR-specific tax plus a $2-per-bedroom-per-night surcharge.

Property tax reclassification: A 2021 state law changed the property tax assessment rate for all STR properties from 25% (residential) to 40% (commercial). This affects over 10,000 properties in Sevier County alone and meaningfully increases the carrying cost for investors statewide.

Insurance: Tennessee requires STR operators to carry a minimum of $500,000 in liability insurance unless the listing platform (Airbnb, Vrbo) provides equivalent coverage. Most major platforms do, but if you are listing on a smaller marketplace or your own direct booking site, you need a standalone policy.

If platforms like Airbnb or Vrbo collect the booking, they typically handle state sales tax and local occupancy tax remittance on your behalf. But you are still responsible for confirming that the correct amounts are being collected. For a broader view of how state-level STR tax policy is evolving nationally, see our guide to STR state tax changes taking effect in 2026.

Nashville: The Tightest Regulatory Framework in Tennessee

Picture this: you find a beautiful four-bedroom bungalow in East Nashville, the numbers pencil out at $4,500 a month in projected STR revenue, and you are ready to close. Then you discover the property is zoned RS5, which means a non-owner-occupied STR permit is not available at any price. That bungalow is a long-term rental or a primary residence. Period.

StaySTRA data shows Nashville has 5,988 active STR listings with a $335 average daily rate and 39% occupancy as of February 2026. Monthly revenue averages $3,512, with top performers at the 90th percentile pulling $7,087. The market has contracted from a 2023 peak of 7,388 listings, and occupancy has declined from 70.4% in 2021 to the current level. That compression is not just market saturation. It is also regulatory.

Two permit types, two very different realities. Nashville issues Owner-Occupied (OO) and Non-Owner-Occupied (NOO) STR permits, and the distinction matters enormously for investors.

Owner-Occupied permits require the property to be the owner’s primary residence. The owner must be a natural person (not an LLC, corporation, trust, or partnership), and only one permit is issued per lot in single-family and two-family zoning districts. Maximum of four sleeping rooms. This is designed for homeowners renting out a spare room or their house while they travel.

Non-Owner-Occupied permits are what investors need, and Nashville has severely limited where they can operate. New NOO permits are only issued in commercially zoned or mixed-use districts: MUN, MUL, MUG, MUI, OG, OR20 through OR40-A, ORI, CN, CL, CS, CA, CF, DTC (Downtown Code), SCN, SCC, and SCR zones. If the property sits in an AR2A, R, RS, or RM zone (which covers most of Nashville’s residential neighborhoods), a new NOO permit is simply not available.

Existing NOO permits in restricted residential zones may renew, but they are non-transferable. When the property sells, the permit dies with the transaction. This creates a shrinking pool of grandfathered NOO permits in residential areas.

Fees and enforcement: The permit fee is $313. Operating without a valid permit carries fines of $50 per day for the first violation, escalating to $500 per day for repeat offenses. Properties with multiple violations face permit revocation and a two-year prohibition on obtaining a new permit.

Investor bottom line: Nashville is a tough market for non-owner-occupied STR investors unless you are buying in commercial or mixed-use corridors. The residential neighborhoods where the best STR revenue historically lives are largely closed to new NOO permits.

Memphis: The Most Investor-Friendly Major City in Tennessee

StaySTRA data shows Memphis has 2,704 active STR listings with a $149 average daily rate and 50% occupancy. The lower ADR reflects Memphis’s positioning as a value market, but the 50% occupancy rate is notably higher than Nashville’s 39%.

What makes Memphis stand out is what it does not do. Non-owner-occupied short-term rentals are essentially unrestricted, which distinguishes Memphis from virtually every other major city in Tennessee (and most major U.S. cities, for that matter).

Permit requirements: Operators need a Short-Term Rental Property Permit from the City of Memphis Permit Office. Each property and each unit within a property needs its own individual permit. Permits are not transferable or assignable. Annual renewal costs $75.

Occupancy and property limits: Maximum of four sleeping rooms per STR. Occupancy is capped at two people per bedroom plus two additional guests.

Tax structure: Memphis charges a 3.5% STR-specific tax plus a $2-per-bedroom-per-night surcharge on top of Shelby County’s local tax rate. Combined with the 9.75% sales tax (7% state plus 2.75% local), the total tax burden runs roughly 13% to 15% depending on how many bedrooms you are renting.

Investor bottom line: Memphis offers the most straightforward path to STR ownership among Tennessee’s major cities. No owner-occupancy requirement, no zoning restrictions limiting where you can operate, and reasonable fees. The trade-off is lower revenue per property compared to Nashville or Gatlinburg.

Chattanooga: A Thoughtful Middle Ground

StaySTRA data shows Chattanooga has 1,536 active STR listings with a $171 average daily rate and 70% occupancy. That occupancy figure is the highest among Tennessee’s major STR markets, suggesting strong and consistent demand relative to supply.

Chattanooga takes a two-tier approach that is more structured than Memphis but less restrictive than Nashville.

Homestay (owner-occupied): The applicant’s primary residence, defined as living there at least 183 days per year. Application fee is $250. Allowed in residential zones within the STVR Overlay District and specified commercial zones.

Absentee (non-owner-occupied): Application fee is $500. Restricted to mixed-use and commercial zones that allow hotels. This is more restrictive than Memphis but less restrictive than Nashville, because Chattanooga’s mixed-use and commercial zones are more generously drawn.

New for 2026: Beginning January 1, 2026, Chattanooga requires the Short-Term Vacation Rental certificate to be physically posted inside the rental unit, with a photo uploaded during the renewal application process. This is an enforcement mechanism (not a new restriction), but it signals that the city is tightening compliance monitoring.

Tax structure: A 4% hotel tax plus 9.25% combined sales tax (7% state plus 2.25% local). Total tax burden of approximately 13.25%.

Investor bottom line: Chattanooga’s 70% occupancy rate and moderate regulatory framework make it one of the more attractive markets for investors who can find properties in qualifying zones. The $500 absentee application fee is a non-trivial annual cost, but it is far cheaper than the regulatory barriers in Nashville.

Knoxville: A Growing Market with Reasonable Rules

StaySTRA data shows Knoxville has 1,511 active STR listings with a $169 average daily rate, 63% occupancy, and 4.5 million annual visitors. The market benefits from its proximity to Great Smoky Mountains National Park (the most visited national park in the country) and the University of Tennessee’s event calendar.

Type 1 permits (owner-occupied): For properties in residential districts where the STR is the permit holder’s principal residence. Application fee is $70. Owner does not need to be present during guest stays.

Type 2 permits (non-owner-occupied): For properties in nonresidential districts. Can be issued to an individual or an entity (LLCs welcome, unlike Nashville). Application fee is $120. One person or entity can hold a maximum of two Type 2 permits within city limits.

Annual renewal: $50 for both permit types, due at least 14 business days before expiration.

Enforcement: Operating without a permit carries a $50-per-day penalty. Recent regulations introduced in late 2025 require professional-grade smoke and carbon monoxide detection systems with annual certifications.

Tax structure: An 8% hotel/motel tax collected quarterly on top of the combined sales tax.

Investor bottom line: Knoxville’s two-permit cap for non-owner-occupied properties limits portfolio scale within city limits, but the fees are low, the process is straightforward, and the city’s tourism infrastructure continues to grow.

Gatlinburg, Pigeon Forge, and Sevier County: Tennessee’s Tourism Corridor

If you have looked at Tennessee STR investing for more than five minutes, you have encountered Sevier County. StaySTRA data shows Gatlinburg alone has 3,914 active STR listings with a $338 average daily rate. Sevier County as a whole has over 10,000 permitted short-term rental units, making it one of the densest STR markets in the entire country.

The regulatory environment here is designed to facilitate tourism, not restrict it. That said, it is not a free-for-all.

Gatlinburg city requirements: Operators need a City of Gatlinburg Business License ($15) and a Sevier County Business License ($15). A Tourist Residency Permit is also required: $200 for a two-bedroom (or fewer) unit plus $75 for each additional bedroom. The permit fee covers mandatory fire and building inspections.

Sevier County (outside city limits): As of January 1, 2024, the county implemented a mandatory annual permit and inspection program for all STR units outside incorporated city limits. This was a significant change for a county that previously had minimal oversight of unincorporated area rentals.

Pigeon Forge: Requires an STR permit (non-transferable, annual). Important zoning note for investors: properties in the R-1 zoning district can only operate as STRs if they were doing so on or before August 13, 2018. New investment properties in R-1 zones are not eligible. Maximum occupancy is 12 persons per property. Pigeon Forge also levies a 2.5% city hotel occupancy tax.

Tax structure (Gatlinburg): A 3% county lodging tax plus 9.75% combined sales tax. With additional local occupancy taxes, the total tax burden in the Gatlinburg area can reach approximately 20% of gross rental income. That is the highest effective tax rate of any Tennessee STR market.

Property tax note: The 2021 reclassification of STR properties to commercial assessment (40% instead of 25%) hits Sevier County harder than anywhere else in the state because of the sheer volume of affected properties.

For a detailed analysis of Gatlinburg’s market economics, occupancy patterns, and revenue data, see our companion piece: Gatlinburg’s STR Economy: The Numbers Behind America’s Most Cabin-Dense Short-Term Rental Market.

Investor bottom line: Sevier County wants your STR business. The barriers to entry are low, the tourism infrastructure is mature, and the local government understands that vacation rentals are the economic engine. The trade-off is a high tax burden and increasing competition in an already saturated market.

Tennessee STR Markets: Regulatory Comparison Table

Legislation to Watch: SB 104 and HB 109

While Idaho and Indiana both passed full STR preemption laws in 2026, Tennessee is considering its own expansion of state-level authority. Companion bills SB 104 and HB 109 would further limit local regulation of short-term rentals, including restrictions on bans and occupancy limits. The bills would also require lodging taxes to be applied uniformly to STRs and collected by booking platforms.

HB 109 had its most recent hearing on March 18, 2026, in the House Development Committee. No floor vote has been taken as of this writing. The bills have not appeared on the Rent Responsibly spring 2026 state legislative tracker (which includes Arizona, Colorado, Idaho, Indiana, and 8 other states), suggesting they may not advance this session.

Even without new legislation, Tennessee’s existing 2018 Act already provides more baseline protection for STR operators than most Southern states. The question is whether the legislature will move toward a true preemption model (like Idaho’s HB 583) or maintain the current hybrid approach that gives cities significant room to create their own rules.

How to Evaluate Regulatory Risk Before You Buy in Tennessee

Imagine you are a host who just found a promising cabin listing in Sevier County, or a duplex in a transitioning Nashville neighborhood. Before you write that offer, run through these five questions:

1. What is the zoning designation? In Nashville, this is the single most important factor. Pull the parcel on the Nashville Property Viewer or equivalent local GIS tool and confirm the zone allows your intended permit type.
2. Is the permit transferable? In Nashville, NOO permits in grandfathered residential zones die on sale. In Pigeon Forge, permits are non-transferable. If you are buying a property with an existing STR operation, confirm whether the permit survives the transaction.
3. What is the total annual regulatory cost? Add up permit fees, inspection fees, business license fees, and the increased property tax from commercial assessment. In Gatlinburg, a four-bedroom cabin might cost $350 or more in annual permit and license fees before you factor in the 40% commercial tax assessment.
4. What is the effective tax rate on gross revenue? Combine state sales tax (7%), local sales tax (1.5-2.75%), and local occupancy/hotel taxes. The spread across Tennessee markets is significant, ranging from about 12% in Pigeon Forge to over 20% in Gatlinburg.
5. Which direction is local policy trending? Nashville has been progressively tightening NOO restrictions for years. Chattanooga just added certificate-posting requirements. Sevier County added mandatory inspections in 2024. Even tourism-friendly jurisdictions are adding layers. Factor in the possibility that rules will be stricter (not looser) when your permit comes up for renewal.

We do our best to keep our regulatory guides accurate and up to date, but ordinances change and we are only human. Always verify current requirements directly with your local municipality before making business decisions.

Run the Numbers Before You Commit

Tennessee’s regulatory landscape rewards investors who do their homework. The difference between a market like Memphis (low barriers, moderate revenue) and Nashville (high barriers, high revenue potential in qualifying zones) comes down to understanding what each city allows and what it actually costs to operate there.

Use the StaySTRA Analyzer to pull real revenue data, occupancy rates, and market comparisons for any Tennessee market before you make an acquisition decision. You can also explore detailed market profiles for Nashville, Memphis, Chattanooga, Knoxville, and Gatlinburg.