Actually these are two very different steps. Perhaps in some states they are tied together, but I think that would be rare.
Incorporating legally changes your type of organization to a corporation. In this case a non-profit corporation. The main benefit of being incorporated is one of reduced liability:
- Nonprofit corporations enjoy the same limited liability protection as for profit corporations.
- Directors/officers are usually not personally liable for the debts and obligations of the nonprofit corporation.
So suppose you have a fundraiser go completely haywire and the PTO ends up owing a company thousands of dollars. Technically, the fundraising company could go after the directors/officers personal assets as settlement of the debt. If the PTO is a corporation, they could only go after the corporate assets.
What we've discussed here on this Forum is that in states where incorporating is a relatively easy/inexpensive step, it's definitely a good idea. Often it's a token fee, like $25. But when it's more like you describe, the organization has to weigh whether it's really worth it. Frankly - these days it seems that if someone is determined to sue, they will find a way to sue everyone involved somehow.
Exemption from Sales Tax is also a very important step, and definitely one you want to pursue within your state. Often, they will require you are a 501(c)(3) before granting this status. But I've never heard of incorporating having anything to do with sales tax exemption.
One other note - if you plan to incorporate, do so BEFORE you apply for 501(c)(3) status. It creates a new organization legally and an existing 501(c)(3) would NOT transfer. As the corporation you would have to apply again with the IRS and pay the fee to do so. Additionally, I've seen on some "helpful" websites the statement that incorporating is required before applying for 501(c)(3). This is absolutely not true. If you are going to do both, incorporate first. But it's optional.
