North American Industrial Classification System codes — or “NAICS codes” as they are commonly known — are six-digit codes that classify businesses into a specific business sector. Each digit signifies a different classification for your business. The first two digits of the NAICS code signifies the major group or sector of an establishment. There are 20 different industry sectors that these two digits define. The last four digits are used to further classify subsectors, industry groups, industry types, and industry by nation.
The NAICS system was developed for government agencies to be able to track economic activity.
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What Is a NAICS Code?
NAICS stands for the North American Industry Classification System. It’s a standardized system used by governments, businesses, and organizations in North America to classify and track economic activities. The NAICS code is a numerical code assigned to a specific industry or sector to categorize businesses based on their primary economic activity.
The NAICS code system was developed jointly by the statistical agencies of the United States, Canada, and Mexico to provide a consistent and comparable framework for collecting, analyzing, and reporting economic data. It replaced the older Standard Industrial Classification (SIC) system in 1997 and has since become the primary industry classification system used in these countries.
Each NAICS code consists of a series of digits that progressively narrows down the industry classification. The code is hierarchical, starting with the broadest sectors and becoming more specific with each additional digit. The structure of the code is as follows:
- Sector: The first two digits represent the broadest level of classification, identifying the major economic sectors (e.g., Agriculture, Mining, Manufacturing, Retail Trade, etc.).
- Subsector: The third digit further divides the sector into subsectors that share similar economic characteristics (e.g., 311 for Food Manufacturing within the Manufacturing sector).
- Industry group: The fourth digit identifies specific industry groups within the subsector (e.g., 3111 for Animal Food Manufacturing within the Food Manufacturing subsector).
- Industry: The fifth digit distinguishes individual industries within the industry group (e.g., 31111 for Dairy Product Manufacturing within the Animal Food Manufacturing industry group).
- National industry: In some cases, a sixth digit may be added to provide additional specificity at the national level (e.g., 311111 for Fluid Milk Manufacturing within the Dairy Product Manufacturing industry).
The NAICS code system enables governments, researchers, businesses, and organizations to analyze economic trends, track industry performance, and compare data across different sectors and regions. It is often used for statistical analysis, economic research, market research, business planning, and government reporting.
When starting a business or filing government forms, you may be asked to provide your NAICS code to identify your industry or sector accurately. You can find the appropriate NAICS code for your business by referring to the official NAICS website, consulting industry classification guides, or seeking assistance from government agencies or business support organizations.
How to Find Your NAICS Code
The best place to start a NAICS lookup search is at the Census Bureau’s website at Census.gov/naics. There you can use online lookup tools or you can even download the entire NAICS manual. There is also an extensive FAQs section that may answer your questions about these codes.
On the website you can use the 2022 NAICS search field to search for NAICS codes by keyword (e.g., publishing or transportation). Once you identify the appropriate major group or sector, you can drill down into more specific categories until you find the 6-digit code that is most accurate for your business.
If you’ve researched codes on that site and you are still not sure what NAICS code is most accurate for your business, you can email the Census Bureau at firstname.lastname@example.org for assistance. If you do, be sure to include your phone number so they can call you to ask questions if necessary.
The NAICS Association website also offers free search and drill-down tools, but keep in mind that it is a business website, and is not operated by the government.
What’s the Difference Between a NAICS Code and SIC Code?
NAICS was adopted in 1997 to replace the Standard Industrial Classification (SIC) system. It allows for statistical comparisons among firms in multiple countries within North America, including Mexico and Canada. You may see SIC codes used by some local agencies or they may appear on business credit reports, but the federal government no longer uses them.
Your business credit report may list both a NAICS and SIC code. They should be broadly similar, though the NAICS code may drill down into more detail.
Can You Have More Than One Primary NAICS Code?
The federal government will only use one NAICS code per establishment for statistical purposes, but other systems such as the System for Award Management (SAM), which is used for government contracting and awards, may allow for more than one NAICS code. Within SAM, most businesses will have a primary NAICS code but may have multiple secondary NAICS codes if the business offers more than one product or service.
It’s also important to understand that some businesses may have more than one NAICS code due to the fact that they have more than one establishment, each with somewhat different activities.
There are two main terms used to describe businesses tracked in this system: establishments and enterprises. A business establishment typically refers to a single physical location where business is conducted or where services or industrial operations are performed (e.g., a bowling alley, coffee shop, factory or farm). When an establishment has one or more locations that are more than 50 percent owned by the same entity then it can qualify as an enterprise. A NAICS code will be assigned a NAICS code, based on the primary business activity.
The U.S. Census Bureau uses revenues or value of shipments to determine the primary business activity of the establishment.
How Are NAICS Codes Used?
Here are a few of the ways your NAICS code can affect your business:
1. Qualify as a small business
The U.S. Small Business Administration sets size standards for what is considered a “small” business. The size of your business will determine whether or not you qualify for certain federal contracting opportunities.
Each industry, classified by its NAICS code, has a particular size standard. Size standards are usually measured by average annual receipts or average number of employees.
For example, if your business is a Soybean farm (NAICS code 111110), you are only considered “small” if your gross annual revenue is less than $750,000. However, if you own a residential remodeling business (236118), your gross annual revenue can be up to $36.5M and you will still be a small business. A footwear manufacturer (316210) is small if they have less than 1,000 employees, but all wholesale traders (sector 42) are only small if they have less than 100 employees.
Here’s how a wrong NAICS code might affect you here: some similar NAICS codes have wildly different size standards. For example, a Recreational Goods Rental business (532292) has a cap of $7.5M, whereas a Truck, Utility Trailer, and RV (Recreational Vehicle) Rental and Leasing business (532120) has a $38.5M cap.
If your current NAICS code disqualifies you from federal, local, or even private small business contracts when you could be bidding on contracts under another industry classification that is appropriate and accurate for the product or services you sell, you may want to consider changing your NAICS code.
2. Qualify for small business funding
Certain industries that are considered extremely high risk—such as pawn shops, political campaigns and gambling activities—will raise a huge red flag for lenders. Banks and alternative lenders will be looking at the NAICS codes of potential business borrowers to determine if they fall into one of these high risk industries. In fact, your NAICS code could make or break your ability to secure a small business loans from your best lending partner!
Let’s look at an example of how this might affect you: Local freight hauling was deemed one of the safest new business industries. A local freight hauling business would likely fall under the NAICS subsector 484 for Truck Transportation. One of the riskiest industries to start a business is passenger transportation, which would likely fall under NAICS subsector 485, or Ground Passenger Transportation. Although these two subsectors are so close in number, they have such different risk levels—one number could be the difference between a potential lender considering your application or rejecting it from the get-go. When applying for a loan, make sure lenders have the right NAICS code for your business.
3. Tax benefits
Federal and state agencies may use NAICS codes for tax purposes, and your state Tax Department may use them to collect and analyze data related to taxes and to create reports regarding taxation issues. Your state government may also use NAICS codes to offer tax incentives to certain industries. Under the wrong NAICS code, you may be missing out on these incentives. Your accounting professional can provide you with more information on these opportunities.
Why Is It Important to Select the Right NAICS Code?
Selecting the right NAICS code is important for several reasons:
- Accurate industry classification: The NAICS code helps accurately classify your business within a specific industry or sector. Choosing the correct code ensures that your business is properly identified and categorized based on its primary economic activity. This is important for statistical analysis, market research, and understanding industry trends.
- Data collection and analysis: Government agencies, research organizations, and businesses rely on NAICS codes to collect and analyze economic data. By using the appropriate code, your business contributes to accurate and reliable data collection, which in turn helps policymakers, economists, and researchers make informed decisions and assessments.
- Market research and benchmarking: The NAICS code allows you to conduct market research and benchmark your business against similar companies within your industry. It helps you understand industry trends, competitor analysis, and market potential. It also assists in finding relevant industry reports, market data, and resources specific to your sector.
- Government compliance and reporting: In some cases, government agencies require businesses to report their NAICS code when submitting various forms, registrations, or applications. Selecting the correct code ensures compliance with government regulations and streamlines administrative processes.
- Business planning and strategy: The NAICS code can be a useful tool in business planning and strategy development. It provides a framework for understanding the characteristics, dynamics, and challenges of your industry. It helps identify target markets, potential customers, and industry-specific opportunities and risks.
- Access to resources and support: Many government programs, grants, industry associations, and business support organizations tailor their resources and assistance based on NAICS codes. By accurately selecting your code, you can access industry-specific support, funding opportunities, networking events, and training programs relevant to your business.
- Investor and partner perception: Choosing the right NAICS code can influence how investors, partners, and stakeholders perceive your business. It helps them understand the nature of your industry, market positioning, and potential growth prospects. It demonstrates your knowledge of the industry landscape and enhances credibility.
While selecting the correct NAICS code is important, it can sometimes be challenging due to the complexity of certain industries or the evolving nature of business activities. It is recommended to consult official resources, seek guidance from industry experts, or utilize professional assistance to ensure accurate code selection for your business.
Low-Risk and High-Risk NAICS Codes
Low-risk and high-risk NAICS codes refer to the level of risk associated with businesses operating within specific industry classifications. These classifications are determined based on various factors, including the nature of the industry, the potential for accidents or harm, and the likelihood of financial instability.
Here’s a breakdown of low-risk and high-risk NAICS codes:
Low-risk NAICS codes
These are industry classifications that are generally considered to have lower levels of risk in terms of safety, liability, and financial stability. Examples of low-risk industries may include professional services such as legal services, accounting, consulting, or administrative support services. Other low-risk sectors could involve retail trade, educational services, healthcare, and finance.
High-risk NAICS codes
High-risk NAICS codes are associated with industries that have a higher likelihood of accidents, potential harm, liability issues, or financial instability. These industries typically involve physical labor, hazardous materials, or high levels of regulation. Examples of high-risk industries include construction, manufacturing (especially heavy or chemical industries), transportation (such as trucking or air transportation), mining, and certain healthcare sectors like nursing homes or assisted living facilities.
It’s important to note that the risk level associated with a particular NAICS code doesn’t mean that every business within that industry is inherently risky or that all businesses within a low-risk NAICS code are completely safe. Risk levels can vary within each industry.
How to Change Your NAICS Code
NAICS codes may seem trivial, but if you’re interested in government contracts, financing options, or certain tax incentives, they will be important for your business. Your business credit reports may list your company’s NAICS code and/or SIC codes. You can check them in your Nav account. If your business credit report lists an incorrect SIC or NAICS code, you will need to provide the correct NAICS code to the credit bureau that is reporting the wrong information.
Nav can also help you make the most of business financing opportunities by matching you to lenders, business credit cards and more, based on your business data and qualifications, like your business credit scores. Sign up today to start seeing your options.
Do sole proprietors have a NAICS code?
Yes, sole proprietors do have NAICS codes listed on the Census Bureau website.
Do I need to register with NAICS?
There’s no need to register with NAICS, and you may not even need a NAICS code. The system is mainly used to gather statistical data and for government contracting. If you never work with a government agency, you may not ever need a NAICS code.
How many NAICS codes can a company have?
While you can only have one primary NAICS code, you can select as many additional codes as you want. However, you should only select NAICS codes that are truly relevant to your industry and reflect your line of business. The U.S. Census Bureau recommends that you have up to five codes if you want to be easier to find in the federal marketplace on SAM.
What is NAICS code for Amazon sellers?
Any retailer that sells products entirely online or by mail order has an NAICS code of 454110. However, the code 454111 is specific to “internet shopping” if you sell exclusively online and don’t take phone or mail-in orders.
What is NAICS code for self employed?
The NAICS code 812990 for “all other personal services” is a catch-all for self employed people. But it’s a good idea to find codes that match your industry, too.
What is the NAICS code for Airbnb?
The NAICS code 72119 for “other traveler accommodation” is specific to short-term lodging and would work for Airbnb and other short-term rentals.
What happens if I don’t select a NAICs code
When dealing with government agencies or filling out certain forms, you may be required to provide a NAICS code that accurately represents your business activity. Failure to provide a code or providing an incorrect code may result in your application being rejected or delayed, as it can hinder the proper classification and processing of your information. Also, if you try to bring on investors, not providing a code may raise questions about your industry classification and the level of due diligence you have conducted, potentially affecting the perception and credibility of your business.
What happens if I select the wrong NAICs code?
If you choose the wrong NAICS code, you might run into compliance issues or miss funding opportunities that you could have otherwise qualified for. It can also change how investors see your business and its risk level, thus making it more difficult to bring on investors. It also might be more expensive than it should be to get business insurance if your NAICS code is wrong.
This article was originally written on December 16, 2015 and updated on July 25, 2023.
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