Compliance & Tax · Tennessee
Car Rental Business Regulations in Tennessee
Tennessee charges a 3 percent automobile rental surcharge on rentals of 31 days or less, on top of 7 percent state sales tax and a local option of 1.50 to 2.75 percent. Peer-to-peer car sharing is expressly exempt from the surcharge. The surcharge is filed quarterly on its own form and due on the 15th, which is a different form and a different deadline from your sales tax return.
Last reviewed: October 2026. Verify current requirements with the Tennessee Department of Revenue.
Tennessee requirements at a glance
| Requirement | Tennessee |
| Automobile rental surcharge | 3% of gross proceeds |
| Duration threshold | Rentals of 31 days or less |
| Peer-to-peer treatment | Expressly exempt from the surcharge |
| State sales tax | 7% |
| Local option sales tax | 1.50% to 2.75%, set by county or city |
| Local tax cap per vehicle | Local applies only to the first $1,600 |
| State single article tax | 2.75% on $1,600.01 to $3,200 |
| Surcharge filing | Quarterly, Form SUR 405, due the 15th |
| Sales tax filing | Monthly, due the 20th, for most operators |
| Minimum liability | 25/50/25 |
| Business licence | County clerk, above $3,000 in taxable receipts |
| Peer-to-peer statute | Tenn. Code Ann. sections 55-12-301 to 55-12-311 |
| Governing law | Tenn. Code Ann. section 67-4-1901 |
What is the Tennessee rental surcharge?
3 percent of gross proceeds on rentals of motor vehicles and trailers for 31 days or less, charged in addition to sales tax. Gross proceeds include rental-related charges such as fuel and insurance.
It is calculated on more than the base rate
Gross proceeds include rental-related charges, so fuel charges and insurance products are inside the base rather than outside it. Operators who calculate the surcharge on the daily rate alone undercollect.
What you can deduct
County wheel taxes, municipal fees, title and registration fees and data-processing fees come out of the base. You may also apply unused registration-fee credits from the prior three quarters, which is a genuine saving that often goes unclaimed because it requires tracking across quarters.
The 31-day line
The surcharge applies at 31 days or less. Leases longer than that are outside it. Tennessee's threshold is one day longer than the 30-day line used by several neighbouring states, which matters if you run a monthly product.
Car sharing is exempt, and that is unusual
Peer-to-peer car sharing programs and individual shared-vehicle owners are not subject to the surcharge. Tennessee instead treats the platforms as marketplace facilitators that collect sales tax on behalf of their sellers. A Tennessee host therefore pays sales tax but not the 3 percent, which is a meaningful difference from a traditional operator on the same transaction.
How does the single article rule change what you collect?
Local sales tax applies only to the first $1,600 of the sales price of each vehicle lease, and a separate state single article tax of 2.75 percent applies between $1,600.01 and $3,200. The 7 percent state rate applies to the whole amount.
| Portion of the amount | What applies |
|---|---|
| Entire amount | 7% state sales tax |
| First $1,600 | Local option tax, 1.50% to 2.75% |
| $1,600.01 to $3,200 | 2.75% state single article tax |
| Above $3,200 | State rate only |
It is computed per billing cycle
Each vehicle lease is treated as a single article and the calculation runs per billing cycle rather than across the whole agreement. For most short-term rentals the amount never approaches $1,600, so the rule is invisible. For long monthly rentals or premium vehicles it changes the arithmetic, and getting it wrong in either direction creates an exposure.
What licenses do you need to rent cars in Tennessee?
A sales tax Certificate of Registration before you do business, a separate automobile rental surcharge account, and a county or city business licence once taxable receipts pass $3,000.
Three registrations, not one
The Certificate of Registration covers sales tax and is required per location. The surcharge needs its own account in the state tax portal. The business licence comes from the county clerk, and from the city clerk as well where a municipal business tax exists.
The business licence has two tiers
Between $3,000 and under $100,000 in taxable receipts you need a Minimal Activity Licence at $15 a year. At $100,000 and above you need a Standard Business Licence, also $15, plus business tax registration with the Department of Revenue and an annual business tax return with a minimum tax of $22. The licence fee is trivial; the return obligation at the higher tier is the part to plan for.
No rental-specific state operator licence
Tennessee has no equivalent of Missouri's leasing company permit or Hawaii's certificate of registration. Beyond the tax registrations and the local business licence, there is nothing further to obtain.
How do you file and pay Tennessee rental tax?
Two returns on two schedules. The surcharge is quarterly on Form SUR 405, due the 15th. Sales tax is monthly for most operators, due the 20th.
| Return | Frequency | Due |
|---|---|---|
| Automobile rental surcharge, Form SUR 405 | Quarterly | 15 January, 15 April, 15 July, 15 October |
| Sales tax | Monthly | 20th of the following month |
| Sales tax, low volume | Quarterly | Where liability averaged $1,000 a month or less over 12 months |
The deadlines are five days apart and easy to confuse
The surcharge is due on the 15th and sales tax on the 20th. Two reminders, two forms, two portals entries. Operators who treat them as one obligation miss the earlier one.
Monthly sales tax filing starts at a low threshold
You file monthly if gross sales reach $400 a month or $4,800 a year, which almost every rental operator exceeds. The quarterly option requires liability to have averaged $1,000 a month or less over twelve months.
What insurance is required for rental vehicles in Tennessee?
25/50/25. No increase to the limits is scheduled.
Two changes are coming, but not to the limits
Tennessee has enacted two measures affecting vehicle registration rather than coverage amounts. From 1 January 2027, proof of United States citizenship or lawful presence will be required for initial vehicle registration. From 1 July 2027, proof of financial responsibility will be required at initial registration, insurer reporting moves from monthly to weekly, and the penalties rise sharply, with the coverage-failure fee going from $25 to $500 and the continued fee from $100 to $1,000. Commercial policies are excluded from the reporting change. Neither is a 2026 obligation, but both change fleet onboarding paperwork and both are worth preparing for.
What does Tennessee require of car sharing?
A full regulatory framework, in force since 1 January 2021. The program assumes the owner's liability during the sharing period and the agreement must carry seven specific disclosures.
The program takes on the owner's liability
During the car sharing period the program assumes the shared vehicle owner's liability for third-party bodily injury, property damage and uninsured or underinsured motorist losses, subject to minimum amounts. Owner and driver must be covered at the financial responsibility minimums, and that coverage may come from the owner, the driver, the program or a combination, with priority rules determining the order. The protection falls away where the owner made a material misrepresentation or acted in concert with a driver who failed to return the vehicle.
Personal policies may exclude you
Tennessee expressly permits personal auto policies to exclude shared-vehicle use, covering liability, uninsured motorist, medical payments and physical damage. A host relying on a personal policy should read it rather than assume, because the statute gives insurers explicit permission to write the exclusion.
Seven disclosures the agreement must carry
The statute prescribes agreement content directly, including the indemnity position, that a personal auto policy may not cover the vehicle, when the program's coverage applies, the fees, a roadside assistance number, and the conditions under which the driver must carry their own policy. This is the only part of Tennessee law that prescribes rental agreement content. For traditional rental operators there is no dedicated agreement statute at all, and general consumer protection law applies instead.
Recalls and airports
The program must verify there is no outstanding safety recall before a vehicle is listed. Separately, a program operating at or using an airport must have a written agreement with the airport or the regulating entity, which has been in force since 1 February 2021 and is something airport-adjacent hosts routinely overlook.
Frequently asked questions
A 3 percent automobile rental surcharge on rentals of 31 days or less, plus 7 percent state sales tax and a local option of 1.50 to 2.75 percent. The surcharge is calculated on gross proceeds, which includes rental-related charges such as fuel and insurance.
No. Peer-to-peer car sharing programs and individual shared-vehicle owners are expressly exempt. The platforms are treated as marketplace facilitators and collect sales tax on behalf of their sellers instead.
Local sales tax applies only to the first $1,600 of each vehicle lease, and a state single article tax of 2.75 percent applies between $1,600.01 and $3,200. The 7 percent state rate applies to the whole amount. It is computed per billing cycle.
The surcharge is quarterly on Form SUR 405, due the 15th. Sales tax is monthly for most operators, due the 20th. Two forms, two deadlines five days apart.
Above $3,000 in taxable receipts, yes, from the county clerk and from the city clerk where a municipal business tax exists. A Minimal Activity Licence at $15 a year covers $3,000 to under $100,000; above that you need a Standard Business Licence plus business tax registration and an annual return.
25/50/25, with no increase to the limits scheduled. Two separate measures take effect in 2027 requiring proof of lawful presence and proof of financial responsibility at initial vehicle registration.
Not for traditional rental companies. General consumer protection law applies. The only prescribed agreement content in Tennessee law sits in the peer-to-peer car sharing statute, which requires seven specific disclosures.
Yes. County wheel taxes, municipal fees, title and registration fees and data-processing fees come out, and you may apply unused registration-fee credits from the prior three quarters.
Related
Neighboring states: Georgia · North Carolina · Missouri
Sources: Tennessee Department of Revenue, Automobile Rental Surcharge Tax · Tenn. Code Ann. section 67-4-1901 · Tenn. Code Ann. sections 67-6-102, 67-6-202 and 67-6-702 · Tenn. Code Ann. section 55-12-102 · Tenn. Code Ann. sections 55-12-301 to 55-12-311 · Public Chapter 796 (2020) · Tennessee Sales and Use Tax Manual