Sevier County, known for its low property tax rates, has recently made changes to its property tax classification for short-term rentals, including properties listed on AirBnB and VRBO. In April 2023, the Sevier County board of commissioners voted to align with a 2021 state law, reclassifying short-term rental properties to a 40% commercial classification, up from the previous 25% residential classification. Properties that operate with a business license and are not the owner’s primary residence will be subject to the classification change.
There are 13,000 identified overnight rentals in Sevier County. The reclassification will result in an increase in property tax rates, raising them from $1.48 per $100 of assessed value to $2.22 per $100. For instance, if you own a rental cabin appraised at $500,000, your annual county property tax will rise from $1,850 to $2,960. It is also important to note that on average, short-term rentals across the county are undervalued by over 53% according to the tax appraisal.
For all short-term rentals (inside and outside of city limits) there is also a 3% lodging tax: 50% of the proceeds shall be dedicated for tourism and infrastructure and 50% dedicated for education. This tax is collected from the guest and remitted by the owner to the Sevier County Trustee’s office monthly and you can pay online. You will collect the tax on rent, cleaning fees, pet fees and any other fees that you require. If AirBnB or VRBO handles tax collection, owners must still establish a lodging account with the Sevier County Trustee’s Office. You can obtain a business license with Sevier County here. Inside the Sevierville, Pigeon Forge and Gatlinburg city limits, there is an additional tax for owners of investment properties. This Gross Receipt Tax is a business tax on all of the income generated from the property. When a property is on program with a property management company, it is their obligation to pay the tax. If the property is self-managed, it is the responsibility of the property owner. This tax ranges between 1%-1.25% depending on which city the property lies within.
Sales tax in Sevier County is 9.75% with 7% going to the State of TN and 2.75% for Sevier County, and short-term rental owners are required to register their business with the State of Tennessee. Notably, Tennessee does not have a state income tax.
One tax strategy real estate investors can utilize is cost segregation. Cost segregation is a tax planning strategy that allows real estate owners to reduce their taxable income and increase cash flow by depreciating assets faster. For more information on this strategy and other tax questions, contact our in-house CPA Matt Tatum. Friendly reminder to always check with your tax professional and local entities for property specific information and questions.