What is NAICS basically?
The NAICS Codes or the North American Industry Classification System (spoken as “nakes”) is a system based on the segmentation of established businesses on the grounds of economic activities. These NAICS Codes are generally used by the public sector and entrepreneurs based in Mexico, Canada, and the United States of America.
Well, as we may say, the NAICS Code is a much evolved and modernized form of the SIC Code system, i.e., Standard Industrial Classification System. However, in the public sector of the U.S., the SIC Codes are still existing. The numbering system of the NAICS Code consists of a five or six-digit code to specify and divide the industry levels. The initial five digits are the same (although not always) in all three countries. However, the first two digits represent the largest business sector. While the third digit represents the subsector, the fourth digit shows the type of industry group, and the fifth digit signals the NAICS industries. Lastly, the sixth digit represents the national industries.
How is NAICS structured?
The North American Industry Classification System Industries uses a hierarchical structure, which means every item is related to a specific category. These primary NAICS codes are signaled by a 6-digit code. Any code which is longer represents a larger number of sectors and contains more ease of designation subsectors. The international NAICS only allots the first five digits of the primary code. The last digit (sixth digit) shows the subdivision of NAICS industries that are allotted by individual countries. This means a 6-digit code in the U.S. will differ from the 6-digit code in Canada or Mexico.
The NAICS structure is as given below:
| Sector | 2-digit code |
| Subsector | 3-digit code |
| Industry Group | 4-digit code |
| NAICS Industry | 5-digit code |
| National Industry | 6-digit code |
For example, NAICS Code 921130 is for Public Finance Activities. It is a 6-digit code where:
• Sector 92: denotes Public Administration
• Subsector 921: denotes sub categories (such as executive, legislative, and more general government support)
• Industry Group 9211: denotes executive, legislative, and more
• Industry 92113: denotes public finance activities
• 6 Digit Code NAICS 921130: Public Finance Activities
Please Note: The three sectors are described with a range of 2-digit codes. Some of them are – Manufacturing (31-33), Retail Trade (44-45), and Transportation & Warehousing (48-49).
Some of the NAICS Codes are as mentioned below:
| CODE | INDUSTRY TITLE |
|---|---|
| 11 | Agriculture, Forestry, Fishing and Hunting |
| 21 | Mining |
| 22 | Utilities |
| 23 | Construction |
| 31-33 | Manufacturing |
| 42 | Wholesale Trade |
| 44-45 | Retail Trade |
| 48-49 | Transportation and Warehousing |
| 51 | Information |
| 52 | Finance and Insurance |
| 53 | Real Estate Rental and Leasing |
| 54 | Professional, Scientific, and Technical Services |
| 55 | Management of Companies and Enterprises |
| 56 | Administrative and Support and Waste Management and Remediation Services |
| 61 | Educational Services |
| 62 | Health Care and Social Assistance |
| 71 | Arts, Entertainment, and Recreation |
| 72 | Accommodation and Food Services |
| 81 | Other Services (except Public Administration) |
| 92 | Public Administration |
Importance of NAICS Code
Having a NAICS Codes is really beneficial, and some of the important perks that you get along are as follows:
▪ Added Bonus Programs: The public sector often uses NAICS codes in order to provide tax incentives to different sorts of industries. To avail this perk, applicants are generally asked to provide one or more NAICS codes that are designated for their businesses, respectively.
▪ Insurance Perks: The NAICS primary code is frequently used by health insurance carriers, worker’s comp carriers, and a list of other insurance organizations to retrieve premiums and risk.
▪ Tax Relief Benefits: The Internal Revenue Service uses NAICS Codes to make analyses and decide about the company's tax returns by checking the other similar type company's in line with yours in the industry. In case you do not have a primary NAICS code or it is incorrect, the IRS sector might compare your deductions with your competitor's group that is different from what it should be.
Conclusion:
To summarize, we can say that these NAICS codes are great to help you in defining your target market. It is essential to comprehend what they exactly mean, how to research them, and how to put them to use for your benefit. As your company grows into the market, these primary NAICS codes become a guide to your clients and help curate more specific content that is approachable to them.