Tennessee lawmakers pass bill limiting cities’ powers over short-term rentals

The Tennessee General Assembly has passed a bill that restricts how far cities can go in placing bans on short-term vacation rentals. The bill now goes to Gov. Bill Haslam, whose office said that he will allow it to become law.

The bill limits the power of cities to completely ban short-term rentals that have already been doing business. It grandfathers in non-owner-occupied short-term rentals that were originally allowed by local law, allowing them to continue to operate if the city changes the law to ban them.

The new legislation could affect a law that Nashville passed earlier this year phasing out short-term vacation rentals that aren’t occupied by their owners — mainly single-family homes and duplexes — from residential neighborhoods. These properties will be required to cease doing business as short-term rentals by June 28, 2020. The new state law could block the phaseout for non-owner-occupied short-term rentals that are currently operating.

Chattanooga has also passed restrictions on short-term vacation rentals, but the Chattanooga mayor’s office said that while the new state law “raises more questions than it answers,” the city believes that the core of its ordinance remains valid and it will continue to enforce it.

The new legislation also affects Tennessee communities that do not yet have any rules on short-term vacation rentals. Once a municipality does create regulations, short-term rentals that are already operating will be grandfathered in and allowed to continue doing business, as long as they can provide documentation of having paid at least six months of sales taxes on the short-term rentals in the year before the rules are enacted.

Short-term vacation rental platform Airbnb has an agreement with the state to collect state and local sales taxes on Airbnb bookings from guests on behalf of Tennessee hosts.

However, some cities also levy their own occupancy taxes on short-term rentals. The only Tennessee city for which Airbnb collects city occupancy taxes is Memphis. Hosts in all other Tennessee cities that require lodging taxes on short-term rentals are responsible for collecting the tax from guests and passing it on to the city themselves.

Tennessee hosts who use other booking services, such as VRBO or HomeAway, are responsible for collecting all sales and occupancy taxes due on accommodations, including state, local, city and other taxes. MyLodgeTax is a service that can help short-term rental operators easily and accurately comply with sales and lodging tax collection requirements.