The NAICS (National American Industry Classification System) is used by governments and businesses for classifying economic activities in the United States, Mexico, and Canada. It is a 6-digit code system used as a current standard by federal statistical agencies for the classification of companies. Let’s take a closer look at the NAICS codes.
What does NAICS stand for?
NAICS stands for “National American Industry Classification System,” developed for use by the FSA (Federal Statistical Agencies of the United States, Mexico, and Canada). It is considered the first economic classification system that was developed on the basis of comprehensive economic concepts.
These are six-digit classification codes that display five levels of detail about any business entity. Each digit in the code defines one category of business and the industry it belongs to. In general, the first two digits define the economic sector, the third digit in the code explains the subsector, the fourth digit indicates the industry group, the fifth digit signifies the industry, and finally the sixth digit in the code designates the national industry.
How do businesses use NAICS codes?
NAICS codes are not assigned by any government authority. It is a self-assigned system that companies pick to define their business activity. Every company uses a NAICS code that indicates the primary line of business.
- Businesses can identify government contracts through NAICS codes and descriptions,
- Companies can use NAICS codes to determine customers by industry code,
- Business entities need to use these codes in forms and applications,
- Businesses can opt for tax incentives based on the industry,
- Businesses need to provide NAICS code when planning to solicit work from government agencies,
- Companies may also require this code for tax purposes, state and federal registrations, and to identify competitors.
Why do I need a NAICS code?
As mentioned above, NAICS codes are defined by the governments of the US, Mexico, and Canada. It is the most established industry classification coding system. If you are looking to register your business, you would need to provide a code based on the industry you are dealing with. Other than that, you will also need to specify a code when applying for government projects.
How do I get a NAICS code for my company?
NAICS code is designed in such a way that businesses find it easy to self-code. A number of online tools and references are available that companies can use to determine the appropriate code that most closely fits their business line.
Using online tools, you can identify a NAICS code by providing the keywords that define your business. Rather than searching extensively through the list of business activities, you can simply select the category that matches your business and explore the details to find the appropriate 6-digit code for your company.
How many NAICS codes can a company have?
The United States Census Bureau assigns one code for each business. These codes are based on the primary business activity that the company needs to maintain throughout. If a company is running multiple businesses, then the NAICS code will be assigned based on the primary line of business. Usually, the company picks the code based on the business activity that generates the most revenue.
Can I change my NAICS code?
Since having a NAICS code is mandatory for all companies in order to report annual filings, make sure you have an appropriate code that best fits your industry and line of business. In case your code is not accurate, you can apply for a code update. However, there is no official method for changing a company’s NAICS code. These codes are generally derived from the information you provided on administrative, survey, or census reports. For this reason, you should contact the agency that assigned the code.
Launch your company in the US with Workhy
Workhy is an online company formation service provider that helps entrepreneurs from all over the world establish their businesses without having to travel to the United States. Workhy also files tax returns on their customers’ behalf during tax season, manages financial processes, applies for EIN & ITIN, opens online bank accounts, and appoints registered agents. Click here to learn more about Workhy.