How the Finance Department Increased Tax Collection by $2.8 Million with Host Compliance

Nashville attracts millions of visitors each year. To support this tourism, Nashville’s short-term vacation rental (STR) market exploded, and suddenly, the famous honky-tonks weren’t the only hosts to late night parties — so were STRs.

The Metro Government of Nashville and Davidson County faced growing public concern for STRs operating illegally. There were accounts of hosts filling STRs with as many beds as possible. The Code Department was quickly met with a backlog of complaints. Over 4,500 rental properties were listed online. Trying to identify addresses and manage compliance manually proved impossible — there are over 60 active rental websites and they keep information like addresses and contact information private.

The Finance Department was also struggling. It couldn’t collect taxes from STRs when they didn’t know who owned them, where they were located, or how many nights they were being rented a month. For a department whose vision is “excellence in the management of public resources,” that was a problem.

“We’re not being good stewards of the taxpayer dollar if we’re not able to collect ongoing tax revenue,” said Zak Kelley, a Special Project Manager with the Finance Department.

Kelley headed up the project to find a solution to Nashville’s short-term rental challenges.

“There was a discussion about why can’t we do this internally,” Kelley said. “And the answer is this is not a system that one can get up and running overnight. This is a system and a process that takes time. It takes investment. It takes staffing. And at the time we didn’t know what the breadth of the STR market was.”

Metro moved forward with a Request for Proposals (RFP) process to explore available software solutions. Granicus’ Host Compliance software addressed all of Nashville’s pain points. Not only did it provide high rates of address identification, but it provided an all-in-one solution for communicating with hosts and providing an online portal for them to register and pay taxes.

With Host Compliance, the Finance Department can collect taxes accurately. They can know how many nights a unit has been rented and can calculate the appropriate taxes owed. The system also allows Metro to send letters to hosts about unpaid taxes.

The Finance Department stated in a Citizen Centric Report that there was a $2.8 million increase in short-term rental revenue collections in their first year of using the Host Compliance software. That increase in revenue is at least ten times the annual cost of the software. As the industry grows and more hosts register and pay taxes, tax collection will continue to increase.

The mission of Metro’s Finance Department “is to provide financial management, information, and business products to policymakers, departments, agencies, investors, and the Nashville community so they can have confidence in Metro Government, make informed decisions, and achieve their results.”