NAICS Codes: What Are They & Why They Matter for Government Contracting
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What is a NAICS Code?
A North American Industry Classification System (NAICS) code categorizes business establishments and industries in the United States, Canada, and Mexico based on the type of goods and services produced. It assigns a unique six-digit code to each industry to ensure consistency and comparability of industry statistics across North America. The NAICS code is used for various purposes, such as statistical analysis, government procurement, and business analysis.
How to get a NAICS Code
No one issues you a NAICS Code because it is a self-assigned system. This implies that when an organization is questioned about its code, it chooses the code that appropriately defines its primary line of business. You may wish to utilize more than one NAICS Code if your company’s business functions span several lines.
You can get a NAICS code by searching the NAICS website, which the United States Census Bureau maintains. The website provides a searchable database of industries and the corresponding NAICS codes.
To get a NAICS code, you can
- Search for your industry by keyword or description
- Browse the NAICS manual to find the appropriate sector and industry
- Contact the NAICS office for assistance if you need help finding the appropriate code on your own.
- It is essential to use the correct NAICS code for your business as it is used for various government reporting and data collection purposes.
Why do you Need a NAICS Code?
A NAICS code is required for various purposes, including:
- Government reporting: NAICS codes are used by government agencies to collect and publish statistics about various industries, including economic and employment data.
- Contracting: Many government agencies and private sector businesses use NAICS codes to identify potential suppliers and contractors for goods and services.
- Taxation: NAICS codes may be used by tax authorities to determine the tax classification of a business and the tax obligations it has.
- Research and analysis: NAICS codes are used by researchers and analysts to study and compare different industries and make informed business decisions.
In short, a NAICS code provides a common language and standard for organizing and grouping businesses into similar industries, which is helpful for various data collection, analysis, and reporting purposes.
NAICS Code Breakdown
The NAICS code is a 6-digit numerical classification system organized into 20 sectors.
The structure of the NAICS code is as follows:
- The first 2 digits represent the sector.
- The following 2 digits represent the subsector.
- The following 1 or 2 digits represent the industry group.
- The final digit represents the national industry.
For example, a NAICS code of “561720” would be interpreted as follows:
- 56: Administrative and Support and Waste Management and Remediation Services sector
- 17: Services to Building and Dwelling subsector
- 20: Janitorial Services
Each NAICS code is assigned to a particular industry sector based on the production process, product type, or services the business provides. The code provides a systematic way of organizing and grouping similar industries for statistical purposes.
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