The permit fee is $313. That is the number most first-time Nashville STR investors focus on. It is also the least of their tax exposure. Before the first guest checks in, a Davidson County STR operator faces a minimum of four distinct tax obligations — occupancy tax, sales tax, business licensing tax, and potentially Tennessee franchise and excise tax — each administered by a different authority, each with its own registration, filing cadence, and penalty structure. Miss one and you cannot renew your permit. Miss two and you are looking at back taxes with interest that cannot be waived.
This post walks through the Nashville short term rental tax stack in the order you need to resolve it — before you close, before you list, and before you assume Airbnb handled it for you.
Step One: Understand What the Tax Stack Actually Looks Like in Davidson County
Start with the full picture before breaking it apart. Nashville imposes a 6% hotel occupancy tax on all short-term accommodations within Davidson County. When combined with Tennessee's 7% state sales tax and the local sales tax, the total tax burden for lodging in Nashville reaches approximately 15.25%. That figure, however, is now slightly outdated for sales tax purposes.
On November 5, 2024, voters in Davidson County approved a 0.5% surcharge on the local option sales tax, effectively increasing the local sales tax rate to 2.75%, to fund Metro Nashville's transit improvement program. The effective date of that surcharge was February 1, 2025. That means as of February 1, 2025, the total sales tax rate in Nashville is 9.75%.
Add that 9.75% in sales tax to the 6% occupancy tax and you are already at 15.75% on gross rental revenue — before the flat fee. In addition to the percentage-based occupancy tax, Metro Nashville also authorizes an additional privilege tax of two dollars and fifty cents upon the occupancy of each hotel room within the territory of the metropolitan government. That $2.50 per night hits every booking regardless of nightly rate.
A property pulling 200 booked nights at $250 average isn't netting $50,000. It's netting $50,000 minus roughly $7,875 in combined taxes — plus $500 in nightly flat fees — before a single operating expense. Build this into the pro forma before the offer, not after.
Step Two: Know Which Taxes the Platform Remits and Which Ones It Doesn't
This is where investors get into trouble. The assumption is that booking on Airbnb or VRBO means the platform handles taxes. Partially true. Dangerously partially.
Online booking platforms collect and remit general sales and use tax for Davidson County and the state of Tennessee, and the county hotel occupancy tax. So if every booking runs through Airbnb or VRBO, the sales tax and occupancy tax on those bookings are handled by the platform. You must collect and remit the taxes yourself if you book directly with your guest. Run a single booking outside the platform — through a text, a referral, a returning guest — and that transaction is entirely your responsibility.
Business licensing and the payment of business tax are not done through a marketplace facilitator — this is the responsibility of the property owner. Full stop. No platform remits business tax on your behalf. Not Airbnb. Not VRBO. Not any of them.
The State of Tennessee collects hotel occupancy taxes for Metro Nashville only through marketplaces that are registered with the state. If your marketplace is not registered with the state and is not collecting hotel occupancy taxes for you, you must remit your tax payment directly to the Metropolitan Government Collections Office. Verify registration status with each platform before assuming coverage.
For investors who are deep into this side of the market, the Costigan Group STR framework runs through remittance responsibilities as part of pre-purchase underwriting — because discovering a gap after closing is expensive.
Step Three: Register for Occupancy Tax Separately Through Metro Nashville
The Nashville STR permit holder is required to remit business, sales, and hotel occupancy taxes to the city and state. Registration for the hotel occupancy tax account is handled through Metro Nashville's Collections Office — not through the Tennessee Department of Revenue, not through Metro Codes, and not through the STR permit application itself. Four separate agencies, four separate registrations.
All hotel occupancy tax returns are due to the Metro Nashville Collections Office by the 20th of each month. The filing is monthly, not quarterly. Miss the 20th and interest and penalty cannot be waived.
There is also a hard enforcement lever most investors don't know about until renewal time. Applicants must provide proof of payment of all taxes due, including property taxes and, for permit renewals, all applicable room, occupancy, and sales taxes required by state law or the Metropolitan Code. In plain terms: if you're behind on occupancy taxes, you cannot renew your STR permit. Metro Codes requires a receipt of paid occupancy taxes. The permit expires. The listing goes dark. There is no grace period.
Step Four: Handle Business Licensing Based on Your Gross Receipts Tier
Tennessee's business tax operates on a gross receipts ladder, and your tier determines what you owe and where you register.
If your total taxable gross receipts in a jurisdiction are $100,000 or more, you must register for and pay business tax to the Tennessee Department of Revenue and obtain a business license from the county and, if applicable, the city in which the property is located. Even if your gross receipts within a jurisdiction are between $3,000 and $100,000, you must obtain a minimal activity license from your local county, and if applicable, your local city.
A Davidson County STR doing 200 nights at $250 average clears $50,000 gross — well below the standard business tax threshold, but well above the $3,000 floor that triggers the minimal activity license requirement. For those with a minimal activity license (between $3,000 and $100,000 in receipts), renewal is done locally with your county or city clerk, usually for a $15 fee each year. That $15 renewal is easy to miss. Missing it creates a compliance gap that shows up at permit renewal.
Push revenue above $100,000 — a single well-located East Nashville or Germantown property with strong weekend demand can get there — and you move to a standard business license with annual returns filed through TNTAP, Tennessee's online tax portal. The annual return, Form BUS-428, is due by the 15th day of the fourth month after your fiscal year ends — April 15 for calendar-year businesses.
In Nashville, STR operators must obtain both a business license and a Short Term Rental Property permit, each with separate application processes. Davidson County charges a 6.25% occupancy tax rate, and the city requires separate registration through Metro Nashville business licensing.
Step Five: Resolve the LLC Question Before Closing
Most investors buying a Nashville STR take title in an LLC. It's the standard liability play. What most don't realize until they're already operating is that the entity structure triggers a separate layer of Tennessee taxation that has nothing to do with the STR tax stack above.
If you operate your short-term rental through a limited liability company or another entity that provides limited liability protection, you may be subject to Tennessee's franchise and excise taxes. These taxes apply to the net earnings of the entity and its net worth. Sole proprietors and general partnerships without limited liability protection are generally exempt from these taxes.
The numbers are real. A Tennessee LLC is subject to both an excise AND a franchise tax unless a taxpayer qualifies for and properly files the FONCE exemption — the excise tax being 6.5% on net rental earnings, including the capital gain on the sale of the property. The franchise tax is based on the entity's net worth or the book value of all real estate owned by the LLC. It is taxed at the rate of 25 cents per $100 of value — for a rental property with a fair market value of $200,000, the franchise tax would be $500, regardless of how much the mortgage is or your equity.
On a $650,000 East Nashville STR, the annual franchise tax exposure alone is $1,625 — before the excise tax on earnings. That's not catastrophic, but it's a real line item that rarely appears in a pro forma built by someone who doesn't know Tennessee tax law.
The FONCE exemption — Family Owned Non-Corporate Entity — is the primary escape valve for individual investors. Anyone who owns an LLC in Tennessee is liable for franchise and excise taxes unless they qualify for one of seventeen exemptions. FONCE is exemption number eleven. Whether your structure qualifies depends on ownership composition and income type, and this is genuinely a question for a Tennessee CPA or tax attorney before you take title, not after. Consult a qualified advisor before structuring the entity.
For investors evaluating multiple properties, this is one of the structural variables we flag during underwriting. The Costigan Group STR Playbook treats entity structure as a pre-offer decision, not a post-closing one.
The One Thing Airbnb Revenue Projections Never Include
Here is the proprietary framing that most STR investors miss: platforms project gross revenue. They do not project gross revenue minus the Nashville short term rental tax stack. When a listing tool shows a property generating $72,000 annually, that's the number before 15.75% in combined sales and occupancy taxes, before the $2.50/night flat fee on every booking, before business license fees, and before any LLC-level franchise or excise exposure.
On a $72,000 gross revenue property, the tax stack alone eats roughly $11,400 in sales and occupancy obligations — more than one full month of revenue — before a single dollar of operating expense or debt service.
Buyers working with our team run a verified tax-adjusted net revenue figure before any offer goes in. The gap between the AirDNA headline number and the actual post-tax, post-expense cash flow is where most Nashville STR investments underperform expectations. It is almost never the market. It is almost always the pro forma.
If you're evaluating a deal right now, our Nashville STR Underwriting Calculator builds the full tax stack into the model automatically. We've been featured by USA Today as Nashville's leading STR and investment advisor specifically because we underwrite before the offer, not after.
Frequently Asked Questions: Nashville Short Term Rental Tax
Does Airbnb pay all my Nashville STR taxes for me?
Online booking platforms collect and remit general sales and use tax for Davidson County and the state of Tennessee, and the county hotel occupancy tax — but only for bookings made through the platform. Business licensing and the payment of business tax are not done through a marketplace facilitator — this is the responsibility of the property owner. You are always responsible for business tax registration and any direct bookings that fall outside the platform.
What is the current combined tax rate guests pay on a Nashville STR?
As of February 1, 2025, the total sales tax rate in Nashville is 9.75%. Add the 6% hotel occupancy tax imposed by Davidson County and the rate applied to Nashville STR bookings is approximately 15.75% of the nightly rate, plus a $2.50 flat fee per occupied room per night. Verify current rates with Metro Nashville's Collections Office before launching any property, as rates can change.
What happens if I don't pay my Nashville hotel occupancy taxes?
You cannot renew your short-term rental permit if you have not paid your hotel occupancy taxes. Metro Codes requires a receipt of paid occupancy taxes. An expired permit means you cannot legally list the property on any platform. Interest and penalty on delinquent payments cannot be waived by the Collections Office, so there is no recourse for a missed month other than paying the full balance owed.
Do I owe Tennessee franchise and excise tax on my STR LLC?
If you operate your short-term rental through a limited liability company or another entity that provides limited liability protection, you may be subject to Tennessee's franchise and excise taxes. These taxes apply to the net earnings of the entity and its net worth. The FONCE exemption may eliminate this liability for qualifying family-owned entities, but eligibility requires a structure review by a Tennessee CPA or tax attorney. Do not assume the exemption applies without confirming it.
Does the $2.50 nightly fee apply to every Nashville STR booking?
In addition to the percentage-based occupancy tax, Metro Nashville authorizes an additional privilege tax of two dollars and fifty cents upon the occupancy of each hotel room within the territory of the metropolitan government. This flat fee applies per room per night and is separate from the percentage-based occupancy tax. On a property booked 200 nights annually, that adds $500 in flat-fee tax obligations that most pro formas omit entirely.
Do I need both a Davidson County business license and a city business license?
In Nashville, STR operators must obtain both a business license and a Short Term Rental Property permit, each with separate application processes. Required licensing includes a Davidson County Business License, a City of Nashville Business License if applicable based on location within city limits, and Tennessee Business Tax Registration for operators with annual gross earnings over $10,000. Check directly with the Davidson County Clerk's office for your specific address and gross receipts tier, as the requirements differ by threshold.
Is the Nashville STR occupancy tax filed monthly or annually?
All hotel occupancy tax returns are due to the Metro Nashville Collections Office by the 20th of each month. This is a monthly filing obligation, not annual. Missed months accrue penalties and interest without exception. Set up automatic reminders or outsource the filing to a CPA the moment you start taking bookings — not after you have three delinquent months stacked up.
Before You Make an Offer on a Nashville STR
Pull the full tax stack on any property you're underwriting — occupancy tax at 6% plus $2.50/night, sales tax at 9.75%, business licensing at your gross receipts tier, and franchise/excise exposure if the deal closes inside an LLC. Add those figures to a real expenses model before you talk to a lender. If the cash flow still works after that, you have a deal worth pursuing. If it only works on the gross AirDNA estimate, it doesn't work at all.
Our team underwrites every Nashville STR deal this way before an offer goes in. If you want us to run the numbers on a property you're evaluating — or review a deal you're already under contract on — reach out to the Costigan Group. We also cover the full permit and zoning side of this on our Nashville STR resource page, including what makes a property permittable before you spend a dollar on due diligence.
Jack Costigan is the founder of The Costigan Group at Compass in Nashville, where his team has closed more than $100 million in real estate across Greater Nashville and Middle Tennessee. Specializing in luxury advisory, investment, and short-term rental real estate, Jack is known for a data-driven approach that helps buyers, sellers, and investors understand the numbers, the neighborhood, and the long-term value before making a decision. Featured in Apple News as one of Nashville's most sought-after short-term rental advisors, Jack pairs deep local expertise with modern marketing and a strategy-first approach to real estate. Learn more at thecostigangroup.com.
