The NAICS, or the North American Industry Classification System, is a standard tool that the Federal statistical agencies have used to classify business establishments. The main purpose of this classification is to collect, analyze, and publish the statistical data that are relevant to the business economy of the United States. The main purpose of developing the NAICS code is to allow a very high level of comparability in business statistics among North American Countries.
What is NAICS?
The NAICS is a standard that Federal statistical agencies have used to classify business establishments for the sole purpose of analyzing, collecting, and publishing the statistical data that are related to the business economy of the United States. It was originally developed by OMB or the Office of Management and Budget. It was started in 1997 to replace the SIC or the Standard Industrial Classification system.
Structure of NAICS
The NAICS is a product-oriented concept, and thus, it tends to group establishments into industries based on the similarity in the processes used to produce the goods or the services. NAICS generally makes use of a hierarchical structure. In this structure, there is a strong relationship between the items in a specific category. The organization of the NAICS is as follows.
● It assigns a 2-digit code for sectors.
● It offers a 3-digit code for subsectors
● It renders a four-digit code for industry groups
● And a five-digit code for the NAICS industry
● A 5-digit code is offered for national industries.
Manufacturing, retail, and transportation and warehousing sectors are represented by two-digit codes, such as 31- 33 for manufacturing, 44-45 for retail, and 48-49 for transportation and warehousing.
Sector and code definitions are given in NAICS
The NAICS was established in the year 1997 and undergoes periodic revision, reflecting the changes in the industrial structure of the United States and the North American economy. There are about twenty sectors that are included in the NAICS, and all of these sectors have partial or full-time representation in the economic census, except code 92, which corresponds to public administration. Some industries that the government dominates through its activities are generally removed from the scope of the economic census.
The NAICS makes use of a production-oriented conceptual framework to group the businesses into industries. It classifies them based on the activities that they are engaged in predominantly. Businesses that make use of uniform raw materials, capital equipment, and labor will be grouped under the same industry category.
NAICS coding structure
NAICS makes use of a six-digit coding system to classify the economic activities under two industry sectors. Of these, five sectors are predominantly goods-producing, and the fifteen are complete services-providing sectors. Such a six-digit hierarchy structure helps with great flexibility in coding compared with the four-digit coding system and structure of the SIC.
All the federal agencies will make use of this North American Industry Classification system to classify the businesses. They use this system to collect, analyze, and publish statistical data regarding the US economy. Such numerical coding systems can be used for regulatory, administrative, taxation, and contracting purposes. When businesses register themselves with the IRS for taxation purposes, they will offer the NAICS code. They may also have to report this tax code to avail certain tax credits.
NAICS: Guiding Business Entities & Federal Contracts
While starting a business, it is mandatory to decide on what form of business entity to establish. The NAICS code helps to classify businesses into different categories based on their areas of operation and assigns codes to them accordingly. Such a coding system helps businesses with their legal and tax considerations as well. Businesses leverage MySetAside web portal, which provides invaluable information regarding federal contracts based on NAICS code. Navigate to the federal contract search filter and explore the latest federal contract information.