Short-term rental taxes in Tennessee: what Smoky Mountain cabin owners owe

If you rent a cabin in Gatlinburg, Pigeon Forge or Sevierville for stays under 90 days, you deal with up to four Tennessee taxes and a federal return. Who pays each one depends on how the guest booked. Here is how it works, in plain terms.

The short answer
Sales tax: who collects it depends on how the guest booked
Local occupancy tax: usually paid to the city or county
Tennessee business tax: watch the $100,000 line
Franchise and excise tax: only if the cabin is in an entity
Your federal return: the 7-day rule
A simple year-end checklist
Sources
FAQ

The short answer

Sales tax applies to rentals of less than 90 days: the 7% state rate plus a local rate of 1.50% to 2.75%.
Local occupancy tax is set by your city or county.
Tennessee business tax can apply once your yearly rental sales hit $100,000 in a jurisdiction.
Franchise and excise tax can apply if the cabin sits in an LLC.
On your federal return, how your rental is classified decides whether a loss can offset your other income.

Sales tax: who collects it depends on how the guest booked

Tennessee taxes rooms, homes, cabins and condos rented for less than 90 days. The rate is the 7% state rate plus a local rate between 1.50% and 2.75%, depending on where the cabin sits.

The tax is on the whole price the guest must pay. That includes required cleaning fees, guest booking fees, damage protection fees and non-refundable pet deposits. A lot of owners miss this. They charge tax on the nightly rate only.

Who sends it in:

Booked on Airbnb, Vrbo or a similar platform: the platform collects and pays the sales tax. You do not report those bookings on your own sales tax return.
Booked through a property manager: the manager collects and pays it.
Booked directly with you, through your own site, a repeat guest or a phone call: you register, collect and file.

Most cabin owners have a mix. Mixed booking is where the gaps show up.

Local occupancy tax: usually paid to the city or county

Many Tennessee cities and counties charge their own occupancy tax on short-term stays. This tax is generally paid to the local county or city, not the state.

The one exception is platform bookings. When a guest books through a short-term rental marketplace, the platform sends the occupancy tax to the Tennessee Department of Revenue for you. On direct bookings, you pay the local government yourself.

Rates and filing rules differ between Gatlinburg, Pigeon Forge, Sevierville and unincorporated Sevier County. Check with the city or county where your cabin sits.

Tennessee business tax: watch the $100,000 line

Renting real property for less than 180 days, including vacation lodging, falls under Tennessee’s business tax. An individual owner owes it only if yearly taxable gross sales reach $100,000 or more in a jurisdiction.

If a property management company runs your rentals, the company owes the business tax on those sales, not you.

Franchise and excise tax: only if the cabin is in an entity

Individuals and general partnerships do not pay Tennessee franchise and excise tax. LLCs, corporations and limited partnerships generally do.

Some LLCs qualify for an exemption, such as a family-owned non-corporate entity. Whether yours qualifies depends on how it is set up. This is worth checking before you move a cabin into an LLC, not after.

Your federal return: the 7-day rule

This is the part that matters most for your overall tax bill.

Normally, rental income is passive. That limits how much of a rental loss can offset your wages or business income. There is a small exception: if you actively participate, you can deduct up to $25,000 of rental loss. That allowance phases out between $100,000 and $150,000 of modified adjusted gross income.

Short-term cabins can be different. Under IRS rules, a property is not treated as a rental activity if the average guest stay is 7 days or less. Many Smoky Mountain cabins fit that pattern.

That alone does not unlock the loss. You also need to materially participate. The IRS lists seven tests. Two common ones for cabin owners are:

more than 500 hours on the activity in the year; or
more than 100 hours, and at least as much as any other person, including your cleaner or manager.

If you meet both, a loss from the cabin may offset other income. If you use a full-service property manager, the 100-hour test is often hard to meet. Keep a log of your hours as you go. Rebuilding it at tax time is hard.

Two more federal points:

Personal use counts. If your family uses the cabin more than the greater of 14 days or 10% of the rented days, the IRS treats it as a home, and your deductions are limited.
Services change the form. If you provide hotel-style services, such as daily housekeeping during a stay or meals, the income goes on Schedule C instead of Schedule E.

A simple year-end checklist

Pull a report of bookings by channel: platform, manager and direct.
Confirm sales and occupancy tax were filed on every direct booking.
Add up yearly gross sales against the $100,000 business tax line.
Tally your hours and your family’s personal-use days.
Check how the cabin is owned: in your name or in an LLC.

Our rental property bookkeeping checklist walks through the monthly side. For cash planning, see how much to set aside for taxes, and for the profit side, what your cabin actually nets.

Talk it through

We are two licensed CPAs in Knoxville who work with short-term rental owners across Sevier County. See how we help on our short-term rentals page, or read our pages for Gatlinburg, Pigeon Forge and Sevierville owners. Monthly work is a flat monthly fee, quoted after we look at your books.

Sources

Every tax fact above comes from these primary sources:

FAQ

What taxes do I owe on a short-term rental cabin in Gatlinburg or Pigeon Forge?

Stays under 90 days owe Tennessee sales tax (7% state plus a 1.50% to 2.75% local rate) and local occupancy tax. Business tax applies if an individual owner’s yearly gross sales in a jurisdiction reach $100,000. Franchise and excise tax can apply if the cabin is in an LLC or corporation.

Does Airbnb collect Tennessee sales tax and occupancy tax for me?

For bookings made through the platform, yes. The marketplace collects and pays the sales tax and sends the occupancy tax to the Department of Revenue. For direct bookings, you collect and file both yourself.

Are cleaning fees subject to Tennessee sales tax?

Yes. The taxable price includes required cleaning fees, guest booking fees, damage protection fees and non-refundable pet deposits.

Can losses from my Sevier County cabin offset my W-2 income?

Possibly. If the average guest stay is 7 days or less and you materially participate, the IRS does not treat the cabin as a passive rental activity. Whether you qualify depends on your hours and records.

Do I need an LLC for my cabin?

Not for tax reasons alone. An LLC can bring Tennessee franchise and excise tax unless it qualifies for an exemption. Talk it through before you transfer the deed.