NAICS Codes: How we Define Manufacturing
Numerical categorization is an inherent part of everyday life, from phone numbers routing our calls to the Social Security Numbers identifying us as citizens. For businesses, there’s an even greater range of meaningful numbers out there, including your North American Industry Classification System (NAICS) code. Whether they realize it or not, every business has a NAICS code — and it’s especially important for manufacturers to know theirs. It represents not only what groups of producers you belong to, but also how the government classifies the nature of your business from a census standpoint.
What is a NAICS code?
A NAICS code is a numerical categorization used by federal statistical agencies — like the U.S. Census — to collect, analyze, and publish statistical data related to the U.S. economy. The system was developed to make it easy to compare industrial output statistics in North America, across the U.S., Canada, and Mexico.
Many local, state, and federal organizations classify businesses according to NAICS codes. In some cases, your code can determine your eligibility for certain grants or contracts.
The anatomy of a NAICS code
NAICS codes rely on a hierarchical structure, in which each item is related to a particular category. Organization of codes follows these rules:
- Sector: two-digit code (Manufacturing is 31-33)
- Subsector: three-digit code (There are 20 sectors in total)
- Industry Group: four-digit code
- NAICS Industry: five-digit code
- National Industry: six-digit code
For manufacturing, the two-digit Sector code, corresponding to 31-33, overhangs the sector — then, various subsectors serve to further qualify a company.
What can your NAICS code tell you?
The benefits of knowing your NAICS code vary depending on your business, but some of the potential advantages of an accurate NAICS code include:
- Securing federal contracts. Many federal contracts are awarded to Small Business Administration (SBA)-certified businesses across the country each year. The SBA, along with other federal organizations like the Department of Veterans Affairs, require businesses to have a valid NAICS code for proper industry classification before awarding contracts.
- Tax incentives. Many state governments rely on NAICS codes to offer tax incentives to certain industries. Applicants must provide one or more NAICS codes for their businesses. The IRS also uses NAICS codes, ensuring your business’ tax returns look in line with other companies in your sector. If you don’t have a code — or if it’s incorrect — you could have a higher chance of being audited.
- Lending. Some commercial lenders use NAICS codes as part of their loan approval process, relying on them to spot specific considerations and risks that relate to your business. An inaccurate code could cause lenders to consider the wrong risks for your business, leading to complications in securing financing.
NAICS codes bring context to industry
NAICS codes are tied to all manner of data systems, including census data. While manufacturers are broadly categorized into one sector, it’s also important to classify through subsections. Doing so allows the government to track business and labor trends, design programs or incentives, determine tax strategies, and much more.
Knowing your NAICS code is important and can put you in a position to grow your business.