More than 18% of Sedona's housing inventory has been converted into short-term rentals. Due to Arizona state law (SB 1168), the city cannot ban STRs or cap the total number of permits. However, the city has implemented a strict mandatory permitting system to track operators and penalize bad behavior. The city is so desperate to reduce STRs that it even launched a "Rent Local Program," offering to pay owners up to $10,000 a year in cash incentives to stop running STRs and lease to local workers instead.

Key Requirements

• State TPT License: Before applying for a city permit, you must first obtain a Transaction Privilege Tax (TPT) License from the Arizona Department of Revenue.
• City Permit: You must obtain an annual Sedona Short-Term Rental Permit ($210 fee per rental unit).
• Per-Unit Rule: Every single advertised unit requires its own permit (e.g., if you rent the main house and a casita separately, you need two permits).
• Neighbor Notification: Before operating, you must notify all single-family properties adjacent to, directly across from, and diagonally across the street from the rental. This must be done in writing via certified mail or hand delivery and include your 24/7 emergency contact number.

Operational and Safety Standards

• Special Event Ban: This is strictly enforced. Sedona explicitly prohibits using STRs for special events of any size, including weddings, retreats, workshops, or conferences.
• Background Checks: You are required to conduct a sex offender background check at least 24 hours prior to a guest's check-in, or keep proof that the booking platform (like Airbnb/Vrbo) conducted one. You must keep these records for 12 months.
• Insurance: Operators must maintain at least $500,000 in liability insurance for each unit.
• Signage: You must post a laminated notice inside the unit (within 10 feet of the entrance) showing fire/safety equipment locations, noise rules, and waste regulations.

Tax Obligations

• County Split: Sedona sits on a county line, so your tax rate depends on the property address.
  • Yavapai County: 13.325% total (6.325% Sales + 3.5% Bed Tax + 3.5% Hotel Tax).
  • Coconino County: 13.90% total (6.9% Sales + 3.5% Bed Tax + 3.5% Hotel Tax).
• Collection: While platforms usually collect the state portions, you are legally responsible for ensuring the full transient occupancy tax is paid and must maintain your TPT license.

Enforcement

• Fines & Suspensions: Violating the special event ban can result in your permit being suspended for a full year.
• Late Fees: Renewing your permit late triggers a $50 to $100 late fee.
• Public Map & Hotline: Sedona publishes a public map of every permitted STR along with the emergency contact's direct phone number and email. They also operate a 24/7 complaint hotline for neighbors.

Summary for Arbitrage: Yellow Light. You can legally scale an arbitrage business here because there are no density caps, but the landlord must be entirely on board. You must also be prepared for aggressive neighbors and strict code enforcement. Ensure your lease specifically prohibits guests from hosting "retreats" or "weddings" to protect your permit.