This can be confusing to everyone at first. Given your story, it's highly unlikely they were ever exempt from anything. Many of us were told the exact same thing by well-meaning volunteers who don't really understand how it works.
There are helpful
guides and tools
for purchase via PTO Today. However there's also a lot of free help on these message boards. I know it will seem overwhelming at first, but what I'll list below is the "condensed" explanation of the different pieces. Start getting familiar with the terms and general concepts. Then come back to us with specific questions.
While known for activities like supporting programs and volunteer recruitment, a PTO is a non-profit business. To run a PTO properly (legally) here are the steps:
IRS Income Rule of Thumb If the PTO grosses more than $5,000 per year, it is supposed to formalize by applying for 501(3)(status).
Example: PTO fundraisers bring in $8,000 with $3,500 expenses, leaving $4,500 for programs. The gross income amount is $8,000
Steps in Creating PTO (Filings, 501(c)(3), Exemptions)
1. Obtain EIN from IRS.This Employer Identification Number (EIN) is your PTO’s tax ID number, similar to a person having a social security number (SSN). By itself, this has nothing to do with being tax exempt or non-profit. Nor do you necessarily have employees.
Process: Complete a 1 page SS4 form for the IRS and submit by mail, phone, internet. Very simple. No cost. Note - even if form asks for SSNs of leaders, you do not need to furnish those.
2. Develop bylaws for your organization. These are the rules by which the organization operates, and you want to create these with an eye towards meeting IRS requirements and state incorporation benefits.
Process: Gather sample bylaws from organizations similar to yours that have good internal processes and already have 501(c)(3) status. Customize to meet your organization’s needs.
3. Explore Incorporating as a Non-Profit in your state.In most states incorporating as a non-profit involves creating a simple Articles of Incorporation (AOI) for which they often have a short one-page template, filling out some minor paperwork, and paying a small fee (maybe $25-$50). In some states it may be more expensive/complicated and you need to weigh the value.
Primarily benefit is that it turns your organization into a single legal entity rather than collection of individuals - which reduces personal liability for the officers.
Process: Find your state agency that governs this, review rules, submit paperwork and fee.
4)Apply to become a qualified 501(c)(3)non-profit with the IRS. Benefits include: § Increased credibility § Donations to your organization are tax deductible § Exempts your fundraising revenues from federal income tax § May be required for grant applications § Probably required for sales tax exemption
Process: Fill out application form 1023 and include $750 fee. This is a pretty intense form, but many of us have successfully filed it.
5. Apply for sales tax exemption in your state. § Exempts you from paying sales tax on qualified purchases for the PTO § Exempts you from having to collect and remit sales tax on taxable items the PTO sells (t-shirts, fundraisers, concession stand, etc.). § Note – this may not exempt your from everything. Rules vary by state.
Process: Find your state agency that governs this, review rules, submit paperwork. Usually very simple and requires no fee. But you probably have to be a 501(c)(3) first.
I am very confused is there a difference between being tax exempt and having this 501 c 3 thing. We just took over our PTO after the past officers had some trouble. We have started digging and we don't know what we are doing. Do you have to have the 501 C 3 thing to be tax exemtp? Are there different types of tax exempt. The past officers, way past, say they have never filed this 501 thing, and there have never been by laws. So how have they always been tax exempt. We were given a number by our bank and told to put it into a letter to give to whoever we were shopping from. Please Explain, I'm getting a headach:
