Arkansas Short Term Rental Laws: AirBnB & Vacation Rental Regulations

As the popularity of short-term rentals like Airbnbs continues to surge, understanding the regulatory landscape becomes increasingly important for hosts and investors. In Arkansas, the definition and management of such rentals are nuanced, varying significantly from city to city. 

This article dives into Arkansas’s specific regulations, comparing them with other states, and guides you through the processes and requirements for starting and maintaining a short-term rental business in the region. With a special focus on Arkansas’s unique approach, we explore how local differences in regulations, licensing, and taxation impact the short-term rental industry.

Arkansas’s Definition of a Short Term Rental

In Arkansas, short-term rentals like Airbnbs are categorized based on their usage and licensing requirements. Cities like Fayetteville and Hot Springs have specific regulations, such as categorizing rentals as either full-time residences with temporary leasing (Type 1) or full-time short-term rentals (Type 2). Hosts are required to have a valid business license, comply with legal requirements, and provide proof of suitable homeowners insurance.

The specifics of the definition may vary by city within Arkansas, as seen in the different approaches of Fayetteville and Hot Springs. For instance, Hot Springs caps the number of short-term rentals at 500 units and imposes an annual licensing fee, which may not be the case in other cities.

Arkansas's approach to defining short-term rentals, like those on Airbnb, is characterized by city-specific regulations, licensing, and insurance requirements, which is a common trend observed in other major states in the U.S. However, the unique aspects of each state’s regulations highlight the importance of understanding local laws for anyone operating or considering investing in short-term rental properties.

Starting a Short Term Rental Business in Arkansas

Starting an Airbnb in Arkansas requires careful planning, adherence to local regulations, securing necessary licenses and insurance, and setting up operational and financial systems. Ensure compliance with city-specific requirements for a successful launch.

The following steps are required to start a short-term rental in Arkansa:

1. Planning and Legal Setup: Begin by planning your Airbnb business, including target market and pricing strategy. Form a legal entity like an LLC for asset protection.
2. Registration and Taxation: Register your business and understand tax obligations, including local and state taxes.
3. Banking and Accounting: Open a business bank account and set up accounting systems.
4. Permits and Licensing: Obtain necessary permits and licenses, which vary by city. For example, Fayetteville requires a business license and compliance with legal requirements.
5. Insurance: Secure appropriate business insurance, including general liability and possibly workers' compensation.
6. Licensing Fees: Depending on the city, you might need to pay licensing fees or home inspection fees.

Short Term Rental Licensing Requirement in Arkansas

Navigating the requirements for short-term rental licensing in Arkansas requires understanding local regulations and adhering to various legal and safety standards. Staying informed and compliant not only ensures the legal operation of your STR but also contributes to a responsible and sustainable rental market in the state.

The short-term rental licensing requirements for Arkansas include:

• Local Ordinances: Each city or county in Arkansas has specific definitions and regulations for STRs.
• Permits and Licenses: Acquire the necessary local permits or licenses, which vary by jurisdiction.
• Insurance and Proof of Ownership: Secure appropriate insurance and provide proof of property ownership or a valid lease agreement.
• Tax Registration: Register for tax collection and remittance with the Arkansas Department of Finance.
• ‍Zoning Regulations: Zoning laws may restrict STRs to specific areas or limit their number.
• Municipality-Specific Caps: Some cities have limits on the number of STRs.
• ‍Annual Renewal: Licenses, such as those in Fayetteville, expire annually and require renewal.

License Renewals for Short Term Rentals in Arkansas

Renewing a short-term rental (STR) license in Arkansas varies by city. In Hot Springs, business licenses for STRs must be obtained annually, due on January 1st. The renewal involves submitting an application with the owner's information, property list, and contact details of a local emergency contact person​​. In Fayetteville, all business licenses expire on October 31st each year. Renewal can be done through the Citizen Self-Service portal, where documentation and a notarized affidavit are required​​​​.

License restrictions for STRs in Arkansas also differ by city:

• Hot Springs: A maximum of 700 STRs is allowed in residential zones annually. STRs must comply with city codes, including noise regulations and waste management. A local property manager, able to be on-site within 60 minutes, is required​​.
• Fayetteville: STRs are classified as Type 1 (owner-occupied) or Type 2 (non-owner-occupied). There's a cap of 475 Type 2 STR business licenses city-wide. STRs must pay a 2% HMR tax, either through platforms like Airbnb or directly to the city. License applications require the property owner’s information, dwelling unit details, and proof of insurance​​.
• Eureka Springs: Short-term rentals are banned in residential areas due to nuisance complaints and housing supply concerns​​.
• Little Rock: A draft ordinance proposes categorizing STRs by on-site and off-site owner occupancy. A responsible party must be available at all times, and STRs will need to obtain licenses, pay taxes, and pass inspections​​.
• Other Cities: Rogers has implemented lodging taxes on STRs. Bentonville, Springdale, and Fort Smith do not yet have specific regulations for STRs​​. Conway and Russellville have seen an increase in STR operations​​.

STR license renewals and restrictions in Arkansas are city-specific, with each city imposing its own set of rules and requirements. It's essential for STR operators to stay informed about the regulations in their specific location.

Required Documents for Arkansas Short Term Rentals

In Arkansas, the documents required for obtaining a short-term rental (STR) license vary by city. However, using Fayetteville as an example, the following documents are generally required:

• Property Owner’s Information: Legal name, mailing address, immediate contact phone number, and email address.
• Dwelling Unit Information: Physical street address, type, and total number of dwelling units on the lot.
• Owner Designated Agent’s Information: If the owner is not their own agent.
• Proof of Vacation Rental or Short-Term Rental Insurance: Listing the STR property address and a statement indicating coverage for short-term rental use.
• Proof of Ownership or Long-Term Lease Agreement: Documents such as warranty deed, property tax, mortgage statement, homestead tax credit, or lease agreement stating the property can be used as an STR.
• Hotel, Motel, Restaurant (HMR) Tax Form: If required.
• Conditional Use Permit: For certain types of rentals in specific zoning districts​​.

According to the Arkansas General Records Retention Schedule, the period for retaining original and renewal licenses or permits issued by an agency is the period of the license or permit plus three years. Completed applications for licenses or permits should be kept for three years​​.

Arkansas Short Term Rental Taxes

In Arkansas, short-term rental operators, like those of AirBnBs, are subject to a variety of taxes. These include a statewide Sales & Use (S&U) tax of 6.5%, a specific Short Term Rental Tax of 1.0%, and a State Tourism Tax of 2%, cumulating to a total state tax of 9.5% on short-term rentals​​. Additionally, a 1% short-term rental tax is levied on tangible personal property rentals, irrespective of whether Arkansas gross receipts or use tax was paid at the time of purchase​​. It's mandatory for rental hosts to collect these taxes from guests and remit them to the proper authorities, as non-compliance can lead to fines and interest penalties​​.

The taxes on short-term rentals are distinct from income tax. While income tax is reported and paid annually to the federal government and state governments on taxable income (after allowed expense deductions), lodging tax is calculated as a percentage of your guest’s stay and added to the bill. This tax is paid by the guest, but the responsibility of collecting and remitting it to the tax authority falls on the host​​. It's also important to note that while online platforms like Airbnb might collect state lodging taxes, they may not collect all taxes due, such as local lodging taxes, leaving the host responsible for these​​.

Operators of short-term rentals in Arkansas, like Airbnb hosts, can avail several tax deductions. These include:

• Depreciation: This allows property owners to write off the value of their assets over time, including improvements to the property that have a determinable life expectancy​​.
• Cost Segregation: This involves breaking down the property into different categories, allowing for faster depreciation of certain improvements like personal property and land improvements​​.
• Furnishings: Purchases made to enhance the property, such as furniture and decorations, are deductible as business expenses​​.
• Cleaning/Maintenance Fees: Costs associated with cleaning and maintaining the property can be deducted as business expenses​​.
• Marketing: Expenses incurred in marketing the property are deductible​​.
• Home Office Deduction: If property management or booking activities are conducted from home, this space can be deducted​​.
• Commissions and Fees: Deductions can be made for commissions and fees withheld by platforms like Airbnb​​.
• Mortgage Interest, Insurance, and Taxes: Mortgage interest, private mortgage insurance, and property insurance are deductible. Property taxes can also potentially be deductible​​.

Short Term Rental Rules By Arkansas City

Cities across Arkansas have implemented various rules for short-term rentals to address issues such as nuisance complaints, housing shortages, and tax evasion. These rules often include permit requirements, safety inspections, and occupancy limitations. Enforcement at the city level involves compliance officers and fines for violators. While the state requires all lodging providers to register and remit taxes, the specifics of short-term rental regulations are primarily determined at the city level​​.

Fayetteville, Arkansas Short Term Rental Laws

In Fayetteville, Arkansas, short-term rentals (STRs) are regulated by city ordinances. The city categorizes STRs into two types:

• Type 1 Short-Term Rentals: These are properties where the principal use remains as a full-time residence. The occupants or owner rent their primary residence as an STR. To be classified as a Type 1 rental, proof of ownership or a long-term lease agreement for the property is required. The occupant or owner must occupy the residence for at least 9 months of the year. Accessory dwelling units (ADUs) are considered Type 1 short-term rentals.
• Type 2 Short-Term Rentals: These are properties not occupied by a permanent resident. The owner lists the property full-time as an STR without intending to have permanent residents living in the property. There's a city-wide cap of 475 Type 2 STR business licenses. For a Type 2 STR in a residential zoning district, a conditional use permit (CUP) is required prior to the city issuing a business license.

Regarding taxes, STRs in Fayetteville are subject to the city's 2% Hotel, Motel, Restaurant (HMR) tax. Platforms like Airbnb and HomeAway/VRBO collect and remit this tax on behalf of the owners for properties listed on their platforms. Owners listing on other platforms or by other means are responsible for collecting the HMR tax from guests and remitting it to the city monthly.

To apply for an STR business license in Fayetteville, owners must complete an application process that includes an inspection. All business licenses expire on October 31st each year and must be renewed through the city's Citizen Self-Service portal. It's important to note that a notarized affidavit is required for the renewal process.

As of December 2023, Fayetteville has reached its cap for Type 2 short-term rental business licenses. Individuals interested in operating a Type 2 STR are encouraged to submit a business license application to be placed on a waitlist. Type 1 STR licenses are still available for properties where a long-term resident is present.

For more detailed information on Fayetteville's short-term rental regulations, you can visit the official website of the City of Fayetteville​​​​.

Hot Springs, Arkansas Short Term Rental Laws

In Hot Springs, Arkansas, the regulations for short-term rentals are as follows:

• Business License Requirement: Owners of short-term residential rental properties must obtain a business license. This includes submitting the owner's name, address, phone number, a list of all rental addresses owned in the city, and the contact details of a local person responsible for handling emergencies and complaints. The initial application fee and subsequent annual business and occupation tax are $50 per bed within the property.
• Ordinance No. 6375: Enacted in March 2021, this ordinance defines a "Short-Term Residential Rental Business" as the renting, leasing, or otherwise furnishing of accommodations like houses, cabins, condominiums, apartments, and similar rentals within Hot Springs for periods of less than 30 days. To operate under this category, obtaining a business license is mandatory.
• Inspection Requirements: An inspection by a City Inspector is required if the maximum occupancy has changed from what is listed on the STR license or for STRs conditionally passed due to window compliance.
• Rental Cap in Residential Zones: The cap for STR licenses in residential zones is 400 licenses. These zones are specified as R-1, R-2, R-3, R-4, and R-L. Non-residential zones and certain other districts are exempt from this cap.
• Local Property Manager Requirement: Short-term rentals must have a local property manager on-call at all times, who can be on-site within 60 minutes to address issues.
• Occupancy and Parking Regulations: The maximum number of occupants for STRs is limited to two per bedroom, plus two additional occupants. Off-street parking must be provided in accordance with city codes.

These regulations are aimed at facilitating economic growth while promoting neighborhood compatibility and protecting the health, safety, and welfare of residents and visitors. They have been developed in response to the increase in privately-owned residential dwellings being used as STRs in Hot Springs, which benefits the city by expanding lodging facilities and providing increased revenue, while also considering potential adverse consequences.

For more detailed information, you can visit the official Hot Springs website's Short-term Residential Rentals page and Short-term Rental Information page.

Little Rock, Arkansas Short Term Rental Laws

In Little Rock, Arkansas, the city board has implemented a set of regulations for short-term rentals like Airbnbs and Vrbos. These regulations include:

• Licensing Requirement: Operators need to license their business through a special use permit or planned zoning development.
• Rental Cap: There's a cap of 500 short-term rentals citywide.
• Annual Fee: Operators must pay a $500 annual fee.
• Complaint Regulation: Operators risk losing their business license if three police-verified complaints are reported within one year.
• Permitting for Existing Rentals: Current active short-term rentals, estimated around 300, can continue operating but owners will need to get a permit.

The ordinance was passed after extensive discussion and aims to regulate the growing sector while addressing community concerns​​.

Takeaway

Navigating the short-term rental market in Arkansas is a journey through a mosaic of local ordinances and regulations. From understanding city-specific licensing requirements to adhering to varied tax laws, hosts must be vigilant and informed to ensure compliance and profitability. This comprehensive guide serves as a starting point for current and aspiring Airbnb operators, highlighting the importance of being well-versed in local laws and regulations. Whether you're starting a new Airbnb in Fayetteville or renewing a license in Hot Springs, staying informed and compliant is key to thriving in Arkansas's dynamic short-term rental landscape. For the most current information and assistance, the Arkansas Short Term Rental Alliance and city-specific resources are invaluable allies in this ever-evolving industry.