CEO 06-26 -- December 6, 2006

CONFLICT OF INTEREST

COUNTY TAX COLLECTORS ACQUIRING INTEGRATED TAX MANAGEMENT SYSTEM FOR OFFICIAL PUBLIC USE FROM TAX COLLECTORS ASSOCIATION'S SERVICE CORPORATION OF WHICH SOME TAX COLLECTORS SERVE AS UNCOMPENSATED DIRECTORS

To: Name withheld at person's request (Tallahassee)

SUMMARY:

No prohibited conflict of interest would be created were the Tax Collectors association's service corporation, of which some Tax Collectors serve as uncompensated directors, to provide a tax management computer program or support services to individual Tax Collector Offices. Because the Tax Collectors receive no pay or consideration for their service as directors, they would hold no employment or contractual relationship, making Section 112.313(7)(a), Florida Statutes, inapplicable. While Section 112.313(3), Florida Statutes, does not depend on compensation/consideration but can be applicable to unpaid directors, the situation presented requires that it be read in conjunction with Section 112.316, Florida Statutes, resulting in a unity of interest rather than a conflict of interest. CEOs 77-16, 81-2, 81-40, 85-59, and 94-17 are referenced; CEO 97-7 and CEO 97-9 are distinguished.1


QUESTION:

Would a prohibited conflict of interest be created were a service corporation of the official association of the sixty-seven county Tax Collectors of Florida to provide a software program or support services to individual Tax Collector Offices?


Under the circumstances presented, your question is answered in the negative.


By your letter requesting our opinion and other information provided to our staff, we are advised that you serve as general counsel of the Florida Tax Collectors' official association2 and its service corporation3 and that you make inquiry of us in behalf of the individual Tax Collectors who serve on the board of directors of the service corporation. In addition, we are advised that Pinellas County Tax Collector .. (in her official capacity as Tax Collector and not in any personal or private capacity) and Microsoft (owners) have developed and own a program (Integrated Tax Management Solution, ITMS) that provides for the integrated collection, distribution, and management of ad valorem, non-ad valorem, and use/sale (TD) taxes. The owners are contemplating conveying at no charge a sublicense to the rights to the service deliverables (intellectual property), which constitutes the ITMS, to the service corporation with the restriction that the service corporation may not further sublicense or convey the license interests to anyone else.


You inquire what, if any, are the conflicts of interest that would be created under the Code of Ethics for Public Officers and Employees under the following scenarios:


•ITMS will be made available by the owners to the service corporation free of charge, and from the service corporation to any Tax Collector interested in using it, also free of charge. Hosting and maintenance service would be sold to each Tax Collector who elects to use ITMS. This service work would be billed to the Tax Collector. Under one alternative, the service work would be provided to the purchasing Tax Collector by the service corporation itself for a fee. Under the other alternative, the hosting and maintenance service would be provided to the Tax Collector with payments to a separate hosting and maintenance company selected by the service corporation by competitive procurement; under this scenario, the service corporation would have the option of accepting a portion of the service fee from the endorsed hosting or maintenance company.


•The ITMS system is conveyed free of charge to the service corporation and then conveyed free of charge to any participating Tax Collector, but with the host maintenance and processing work being done by a separate entity selected by the service corporation through a competitive procurement process. The separate entity would not have on its board any Tax Collector. The separate entity would then be endorsed to participating Tax Collectors by the service corporation for an endorsement fee as worked out, and the ongoing process would be subject to a continuing program standards review by a user group pursuant to a base agreement.4


Necessarily, your inquiry focuses on Section 112.313(3), Florida Statutes,5 due to various Tax Collectors serving, from time to time, as members of the corporate board of directors of the service corporation. Section 112.313(3) provides:

DOING BUSINESS WITH ONE’S AGENCY.—No employee of an agency acting in his or her official capacity as a purchasing agent, or public officer acting in his or her official capacity, shall either directly or indirectly purchase, rent, or lease any realty, goods, or services for his or her own agency from any business entity of which the officer or employee or the officer’s or employee’s spouse or child is an officer, partner, director, or proprietor or in which such officer or employee or the officer’s or employee’s spouse or child, or any combination of them, has a material interest. Nor shall a public officer or employee, acting in a private capacity, rent, lease, or sell any realty, goods, or services to the officer’s or employee’s own agency, if he or she is a state officer or employee, or to any political subdivision or any agency thereof, if he or she is serving as an officer or employee of that political subdivision. The foregoing shall not apply to district offices maintained by legislators when such offices are located in the legislator’s place of business or when such offices are on property wholly or partially owned by the legislator. This subsection shall not affect or be construed to prohibit contracts entered into prior to:


(a) October 1, 1975.

(b) Qualification for elective office.

(c) Appointment to public office.

(d) Beginning public employment.

This statute is at issue because on its face, and considered in isolation, it prohibits a public officer (e.g., a Tax Collector) from, inter alia, purchasing services from a business entity (e.g., a corporation) of which he or she is, inter alia, a director; and it prohibits a public officer from acting in a private capacity6 to sell services to his or her political subdivision or any agency thereof.

However, in situations such as that presented, it has not been our practice to read Section 112.313(3) in isolation. Rather, in a number of instances we have read it in conjunction with Section 112.316, Florida Statutes, finding a unity of interest, rather than a conflict of interest, in situations in which business entities whose directors or officers included officials unpaid and uncompensated for their corporate service performed functions in support of or in harmony with the public services, mission, or goals of the officials' government agencies. See, for example, CEO 81-40 (school board member serving as trustee of Florida school boards association insurance trust), CEO 85-59 (historic preservation board trustees and staff serving as officers or directors of nonprofit direct support organization), and CEO 94-17 (HRS district administrator serving as director of nonprofit corporation contracting with district).7 In the situation you present, the service corporation was created to serve the interest of the Tax Collectors' official association rather than the private interest of a public officer. In addition, the proposed intellectual property and support arrangements between the service corporation and the Offices of the various Tax Collectors are aimed at assisting the official functions of their Offices for service to the public. Finally, nothing indicates that any Tax Collector will privately benefit in any way from the activities of the service corporation. Such a situation supports the application of Section 112.316 and our finding a unity of interest. Section 112.316 provides:


CONSTRUCTION.—It is not the intent of this part, nor shall it be construed, to prevent any officer or employee of a state agency or county, city, or other political subdivision of the state or any legislator or legislative employee from accepting other employment or following any pursuit which does not interfere with the full and faithful discharge by such officer, employee, legislator, or legislative employee of his or her duties to the state or the county, city, or other political subdivision of the state involved.


Accordingly, we find that under any of the scenarios set forth herein describing the proposed relationship between the service corporation, the various Tax Collector Offices, and/or other entities would not create a prohibited conflict of interest for a Tax Collector.


ORDERED by the State of Florida Commission on Ethics meeting in public session on December 1, 2006 and RENDERED this 6th day of December, 2006.


________________________
Norman M. Ostrau, Chair


[1]Prior opinions of the Commission on Ethics are available on its website: www.ethics.state.fl.us
[2] The tax-exempt, nonprofit official organization of Florida's sixty-seven elected Tax Collectors.
[3] In addition, the information you provided shows that in 1995 the Tax Collectors decided to create, own, and use a separate business entity, a for profit service corporation, to manage activities in order to provide services and/or to earn revenue to reduce and supplement dues (derived from public funds) paid to the Tax Collectors' association.
[4] From review of the materials you submitted in light of their chronology of submission, the two scenarios set forth above in the body of this opinion appear to contain the alternatives you present. However, in view of our finding herein of no conflict based on a unity of interest, the nuances of the various scenarios are not paramount. Nevertheless, in order to completely present your inquiry, additional scenarios contained in your submitted materials follow:

•The owners convey to the service corporation a sublicense to the rights to use the ITMS intellectual property they have invented, at no cost, by which the service corporation, which cannot sublicense the rights to the intellectual property further, may provide for hosting it (either by hiring employees or negotiating with a separate application service provider, to operate, support, and maintain the ITMS) which would then be available to any Tax Collector who would want to pay for the hosting service.

•The service corporation offers its hosting service to any Tax Collector but with the full knowledge that Microsoft is the only supplier of the program needed to operate, support, and maintain the intellectual property.


•The owners convey a sublicense to individual Tax Collectors with the understanding that a Tax Collector may not further sublicense the rights to the intellectual property or otherwise convey the intellectual property any other person or entity, with each Tax Collector then obtaining the required hosting operation, support, and maintenance.


•The owners convey the rights to the ITMS intellectual property to the service corporation which would then sell the rights to the intellectual property directly to individual Tax Collectors, leaving matters of the availability of hardware and technology staff to operate, support, and maintain the program for later resolution.


[5] We find that Section 112.313(7)(a), Florida Statutes, is not applicable to your inquiry, inasmuch as your inquiry does not indicate that any Tax Collector holds employment or a contractual relationship with the service corporation. Previous decisions of ours hold that service (without compensation or consideration) on a corporate board of directors does not constitute employment or a contractual relationship. See, for example, CEO 77-16. Section 112.313(7)(a) provides:

CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP.—No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he or she is an officer or employee . . .; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his or her private interests and the performance of his or her public duties or that would impede the full and faithful discharge of his or her public duties.


[6]It is our view that "acting in a private capacity" includes one's membership on the board of directors of a corporation which sells to his or her political subdivision or agency. See, for example, CEO 81-2.
[7] In finding a unity of interest in the instant situation, we distinguish CEO 97-9 (department of corrections deputy secretary director of corporation doing business with department) and CEO 97-7 (school board employee serving on board of directors of proposed charter school). In CEO 97-9, the deputy secretary/corporate director was a paid director. In CEO 97-7, the school employee was not appointed to the corporate board because of his or her public position, and the charter school was not created for the benefit of the public office or agency.