Short Term Rental Regulation

For years people have been listing their homes and rooms for rent to others who are looking for a more intimate, and typically less expensive, lodging solution. Services like AirBNB have made the short term rental process safe and a breeze. These services have transformed how people find lodging in ways similar to how Uber has transformed how people find transportation. However, according to city officials, short term rentals are currently illegal in Knoxville. Officials claim that short term rentals go against residential zoning codes and shouldn’t be allowed in those zones. At least without a permit.

I attended a public meeting on a proposed draft ordinance for regulating short term rentals in Knoxville. There were around 50 – 60 people in attendance and there were more hands raised with questions than time for in the meeting. Some had concerns about short term rentals operating in their neighborhoods while others had concerns about government overreach and how this ordinance would impact their property and income. All valid concerns with tricky solutions.

What the city wants to do

The city is proposing that operators of short term rentals apply for one of two permits, be subject to taxes, and meet certain safety standards. The first permit type costs $70 and is for operators who are renting their primary residence in a residential area. The second permit type costs $150 and comes with two permits. This type is for operators who are renting one or two units that are neither their primary residence nor a home in a neighborhood residential zone. Renting a home in a residential area that is not your primary residence will be illegal under this ordinance. Also, operating a short term rental without a permit will result in a $50 per day fine. A business license may also be required if the rental is generating more than $2,999 a year.

Operators will also be subject to a Hotel Occupancy Privilege Tax, a Tennessee sales tax, and a gross receipts tax to the State of Tennessee. The hotel tax has been justified by city officials as “leveling the playing field” for short term rentals and hotels/motels. I disagree with the hotel tax in this situation. Hotels receive extra services from the city that are paid for with the hotel tax. If short term rentals don’t receive the same services, they shouldn’t be taxed for those services

The city’s biggest complaint against short term rentals in residential zones is that they feel these rentals take affordable housing options off of the market. Though they did not present data to back up this complaint. And while some homes may be taken off the affordable housing market, I don’t believe this complaint is a valid reason to disallow short term rentals in residential zones. You should be able to decide how you want to rent your property, not the city.

What I want to do

I have a few concerns of my own with the draft ordinance. I see services like AirBNB as a wonderful example of free market enterprise and self-regulation. With literally no government regulations on short term rentals in Knoxville, services like AirBNB have thrived. Tens of thousands of people use these services a year in our city without any problems.

So why the proposed regulation? Well, despite the government not being involved in the transaction or process at all, income is being generated and therefore is subject to taxation under state law. Plus, current residential codes don’t allow for commercial properties (which is technically what a short term rental is) to operate in those residential zones. Even though residents may bypass this restriction if the home is a long term rental.

I believe we need to rework our residential zone codes so that the codes allow for commercial activity from short term rentals in certain residential zones. This would allow the city to enforce regulations on short term rental properties in those zones. While the state taxes are virtually unavoidable, I do not believe short term rentals should be subject to a hotel tax. Especially if they are not receiving the same services as hotels for the tax, and certainly not for simply “leveling the playing field.” I also do not believe permits are necessary. Like I mentioned above: You should be able to decide how you want to rent your property, not the city.

Technology is rapidly revolutionizing how we manage our property. From renting out our cars to renting out our homes these services are making commerce easy while creating accountability among their users. Our governments must understand this and our city codes need to reflect this.