When I was elected president of the grade school PTO this past spring, I was told that the group was a nonprofit, tax-exempt corporation. I soon learned not to take anything for granted; neither the state nor the IRS had ever heard of our PTO. I learned a valuable lesson: It's important to check the legal status of your parent group and to make sure all the records are up to date.
To find out whether your group is incorporated, you can first check to see whether a corporate database exists on your state's website.
A handy resource is available on the IRS website, where they've gathered relevant state links for exempt organizations into an easy-to-use list. Click on the link for your state, then click the link for "State Nonprofit Corporation Filings."
Once at the state incorporation site, you usually can find a searchable corporate information database. If you're having trouble, call your state's office of the Secretary of State and ask how you can find out whether your PTO is incorporated.
Federal Tax-Exempt Status
It's also a good idea to check whether your PTO has applied for and received recognition from the IRS as tax-exempt under the federal tax code. Federal tax exemption excuses the group from paying federal income tax on the organization's net income. IRS rules require that all individuals and organizations file the appropriate tax return if gross income is $5,000 or more. Without IRS recognition of tax-exemption, an organization cannot be sure whether it is exempt from paying federal income taxes on any net income.
To check federal tax-exempt status you can go to the IRS website. Once there, type "Publication 78" in the search box and then click on "search now." Note, however, that the IRS search does not always produce accurate results.
You also might want to call the IRS Exempt Organizations Unit at 877-829-5500. A warning: It may be difficult to get through. The IRS suggests that Tuesday through Thursday afternoons work best.
Each organization should have its own employer identification number, regardless of whether the PTO is incorporated or tax-exempt. This is true even though the group has no paid employees.
An EIN generally is required to open a bank account. Frequently, however, PTOs use the school's EIN. To check whether your PTO has its own EIN, ask the school for its EIN. Then check the EIN being used for your bank account. If the PTO is using the school's EIN, you can easily get your own online at the IRS website, www.irs.gov. Simply type "EIN" in the search box. You may also apply by telephone or fax. Complete instructions are available at the IRS website.
Sales Tax Exemption
Exemption from sales tax is granted at the state level by the state taxing authority. Most states provide a sales tax exemption number that allows nonprofits to purchase things without paying sales tax. Frequently, however, PTOs use a school's sales tax number incorrectly.
While it may be legal to use the school's number for items purchased directly for the school, the PTO generally should not be using the school's sale tax exemption to purchase items for use by the PTO: materials for the fall fundraiser, refreshments for PTO meetings and events, and the like.
Ask the school for its sales tax exemption number to check whether the PTO is using the school's number or has its own. If the PTO does not have its own and wants to apply for one, go to the state website to check for information on how to apply.
Again, you might want to start at Findlaw.com and search the government information available for your state. States all differ on what types of organizations may obtain a sales tax exemption. Check the rules for your state carefully.
It's a good idea to start a corporate PTO notebook to keep legal documents. You'll create a valuable corporate memory for your successors.