Tennessee Ethics Reform Act – New Law May Impact Communications with State Agencies
By Dan Elrod and Mark Smith

During the 2006 Extraordinary Session, the Tennessee General Assembly passed the new Tennessee Comprehensive Governmental Ethics Reform Act of 2006.1 Among other things, the Ethics Reform Act established a new Tennessee Ethics Commission) and replaced prior state law governing lobbying activities. The provisions of the Ethics Reform Act relating to the commission took effect on Oct. 1, 2006, and a number of changes relating to the administration and enforcement of the state’s lobbying laws are underway.

Certain Activities of CPAs Could Be Lobbying

While very few certified public accountants probably think of themselves as potential lobbyists, CPAs, in certain cases, could engage in “lobbying” when they approach state administrative agencies on behalf of their clients. The language of the Ethics Reform Act and the legislative history suggest that professionals like CPAs do not engage in lobbying when they work with state administrative officials on ordinary and routine permitting, licensing and compliance matters. However, communications with state executive branch officials that fall outside of these parameters could very well constitute lobbying under the Ethics Reform Act. Given this possibility, prior to communicating with state officials on behalf of a client, CPAs would be well advised to consider whether the communications could constitute lobbying under the Ethics Reform Act.

The definitions are key to properly interpreting and applying the Ethics Reform Act. In the Ethics Reform Act, a lobbyist is broadly defined as “any person who engages in lobbying for compensation.”2 Lobby means “to communicate, directly or indirectly, with any official in the legislative or executive branch for the purpose of influencing any legislative action or administrative action.” Influencing legislative or administrative action includes “promoting, supporting, influencing, modifying, opposing or delaying any legislative or administrative action by any means, including, but not limited to, the provision or use of information, statistics, studies, or analyses.” Administrative actionincludes “the taking of any recommendation, report or non-ministerial action; the making of any decision or taking any action to postpone any action or decision; . . . ; the promulgation of a rule; or any action of a quasi-legislative nature, by an official in the executive branch of state government.”

Exceptions to the Definition of Lobbying May Apply

The Ethics Reform Act includes a number of exceptions for activities that would otherwise be considered lobbying. Generally, these exceptions are narrowly drawn and address a number of different issues. The exceptions include certain communications by public officials, licensed attorneys, local government officials and the media. The exceptions also include certain procurement activities, certain communications with the Department of Economic and Community Development and certain work on economic development incentive packages.

In addition to these exceptions, there are two exceptions that are perhaps the most important and relevant ones for Tennessee CPAs. The first exception is an exclusion from the definition of administrative action, and that exception provides that administrative action “does not include ordinary and routine permitting, licensing, or compliance decisions by an official of the executive branch of state government.” The second exception applies to responses to requests for information or testimony from certain state officials, and this second exception provides that responses to such requests do not constitute lobbying either. Many and possibly most communications between CPAs and state agencies, such as the Department of Revenue, should likely fall within these two exceptions.

The exception that probably has the most relevance to the work of CPAs is the provision relating to “ordinary and routine” compliance decisions. For instance, interactions between a CPA and an official of the Department of Revenue regarding whether the CPA’s client has paid taxes correctly would seem to be an ordinary and routine determination by the Department official regarding taxpayer compliance with state law. Unfortunately, the precise parameters of the exception for ordinary and routine matters before various state agencies have not yet been determined. The commission has only been recently formed, and thus very little interpretive guidance is available concerning the proper interpretation and application of the Ethics Reform Act.³ To date, the commission has issued three advisory opinions concerning, and none of these opinions have addressed this exception for ordinary and routine matters.⁴

A Common Sense Rule of Thumb

Pending further guidance from the commission, a CPA should ask himself or herself four key questions before relying upon the ordinary and routine exception: (1) Is the matter ordinary and routine? (2) Does it relate to a permitting, licensing or compliance decision? (3) Is the decision a decision of an executive branch official? and (4) would the involved State officials likely answer the first three questions the same way? If the answer to any of these questions is “no” or “maybe not,” then a CPA should more thoroughly explore whether the agency communications require registration as a lobbyist.

The commission will undoubtedly receive additional requests for informal guidance and advisory opinions concerning the proper interpretation and application of the Ethics Reform Act. The Tennessee Society of CPAs will continue to monitor the activities of the commission and any legislative developments that would impact the Ethics Reform Act. In the meantime, Tennessee CPAs would be well advised to consider carefully the potential applicability of the Ethics Reform Act to their work with various state agencies.

Endnotes

This article is for informational purposes only and does not constitute legal advice. Terms that are shown in bold italic print are defined terms in the Ethics Reform Act.

1 Chapter 1 of the 2006 Extraordinary Session of the Tennessee General Assembly. A copy of the Ethics Reform Act is available at http://tennessee.gov/sos/acts/104/pub/pc0001EOS.pdf.

2 Compensation is any salary, fee, payment or reimbursement, but compensation does not include “the salary or reimbursement of an individual whose lobbying is incidental to such person’s regular employment.”

3 The Commission Web site, http://state.tn.us/sos/tec/, is a useful resource for information concerning the Ethics Reform Act.

4 In the course of its deliberations on one of these opinions at its Dec. 12, 2006 meeting, Opinion 200602 relating to the proper interpretation of the “licensed attorney” exception, the Commission considered whether an informal taxpayer conference with the Department of Revenue would also fall within the “ordinary and routine” exception (http://state.tn.us/sos/tec/opinions/06-02.pdf). The Commission observed that what is “ordinary” and “routine” is a fact-intensive question. The Commission ultimately declined to address this exception in Opinion 200602 because the request for the opinion did not seek guidance on the “ordinary and routine” exception and 3492078_1.DOC because the requesting party had not provided any factual information to support the “ordinary” and “routine” nature of these proceedings. The Commission expressly reserved that issue for a future opinion.

 About the Authors

Dan Elrod and Mark Smith are members of Miller & Martin PLLC, with offices in Nashville, Chattanooga and Atlanta. Miller & Martin represents TSCPA on legislative and regulatory matters. Elrod can be reached at delrod@millermartin.com and Smith can be reached at msmith@millermartin.com.