Does My Business Have the Right Code?

28
Dec 2020
Does My Business Have the Right Code?

“The maximum amount of a covered loan made to an eligible entity that is assigned a North American Industry Classification System code beginning with 72 at the time of disbursal…”

H.R. 133 (PL 116-____), §311(a)(37)(C)(iv).

In the December revisions to the Coronavirus Relief Act, Congress allowed certain businesses to receive loans equal to 3.5 months (rather than 2.5 months) of payroll and other expenses.  These businesses are those “assigned a North American Industry Classification System code beginning with 72 at the time of disbursal.”  An NAICS code of 72 designates establishments in Accommodation and Food Service, but does that include your company?

  

What is the North American Industry Classification System?

Even if you didn’t choose a NAICS code for your business (or have no idea what an NAICS code is), you probably have one.

The Census Bureau explains that the “North American Industry Classification System (NAICS, pronounced Nakes) was developed under the direction and guidance of the Office of Management and Budget (OMB) as the standard for use by Federal statistical agencies in classifying business establishments for the collection, tabulation, presentation, and analysis of statistical data describing the U.S. economy.”  For statistical purposes, a business establishment is assigned one NAICS code, based on its primary business activity.  

An establishment is generally a single physical location where business is conducted or where services or industrial operations are performed (e.g., factory, mill, store, hotel, movie theater, mine, farm, airline terminal, sales office, warehouse, or central administrative office).  An enterprise, on the other hand, may consist of one or more locations that are more than 50 percent owned by the same entity performing the same or different types of economic activities. Each establishment of that enterprise is assigned a NAICS code, based on its own primary business activity.  (More on NAICS)

 

How do I determine the NAICS Code for an establishment?

You can use the search feature at www.census.gov/naics. In the "2017 NAICS Search" box on the left side of that page, enter a keyword that describes your kind of business.  For example if you look up “Bar” you will find 160 possible listings, with 2 codes being the most relevant 

722410  Drinking places (i.e., bars, lounges, taverns), alcoholic

722410  Bars (i.e., drinking places), alcoholic beverage

722515  Beverage (e.g., coffee, juice, soft drink) bars, nonalcoholic, fixed location

722515  Snack bars (e.g., cookies, popcorn, pretzels), fixed location

722515  Soft drink beverage bars, nonalcoholic, fixed location

If you examine Code 722410 further, it is described as comprising “establishments known as bars, taverns, nightclubs, or drinking places primarily engaged in preparing and serving alcoholic beverages for immediate consumption. These establishments may also provide limited food services.  This code includes (1) Alcoholic beverage drinking places, (2) Bars (i.e., drinking places), alcoholic beverage, (3) Cocktail lounges, (4) Discotheques, alcoholic beverage, (5) Drinking places (i.e., bars, lounges, taverns), alcoholic, (6) Lounges, cocktail, (7) Nightclubs, alcoholic beverage, (8) Tap rooms (i.e., drinking places), and (9) Taverns (i.e., drinking places).

The specific guidance on Code 722410 also provides several exceptions:  Establishments primarily engaged in preparing and serving alcoholic beverages (i.e., not known as bars or taverns) and providing food services to patrons--are classified in Industry 72251, Restaurants and Other Eating Places, while establishments operating a civic or social association with a bar for the association members--are classified in Industry 813410, Civic and Social Organizations.  If the establishment retails primarily packaged alcoholic beverages not for immediate consumption on the premises, the establishment would be classified in Industry 445310, Beer, Wine, and Liquor Stores.  If the establishment operates a dance club without selling alcoholic beverages, it would be classified in Industry 713990, All Other Amusement and Recreation Industries.

On the other hand, Code 312120 covers Breweries, and details that this industry comprises establishments primarily engaged in brewing beer, ale, lager, malt liquors, and nonalcoholic beer.  It includes 

    • Ale brewing;
    • Beer brewing; 
    • Beverages, beer, ale, and malt liquors, manufacturing;
    • Breweries;
    • Grain, brewers' spent, manufacturing;
    • Lager brewing;
    • Malt liquor brewing;
    • Near beer brewing;
    • Nonalcoholic beer brewing;
    • Porter brewing; and
    • Stout brewing

 

If I brew beer and have a tap room in a single physical location what is my code?

Ideally, the primary business activity of an establishment is determined by relative share of production costs and/or capital investment. In practice, other variables, such as revenue, value of shipments, or employment, are used as proxies. The U.S. Census Bureau generally uses revenue or value of shipments to determine an establishment's primary business activity.  It is likely whichever portion of your business at that establishment location has the largest share of capital investment, revenue, or employment.  

 

How do I find my official NAICS code?

There is no central government agency with the role of assigning, monitoring, or approving NAICS codes for establishments. Because there is no agency that governs how NAICS codes are assigned to businesses, these codes are largely self-assigned or assigned to your business by an agency collecting information on businesses.

Individual establishments are assigned NAICS codes by various agencies for various purposes using a variety of methods.  The U.S. Census Bureau may assign an NAICS code to your business based on a survey you took. If you applied for an Employer Identification Number (EIN) on the IRS website, information from your application can be used to assign your business a code. This code will also show up on your business credit reports.

The U.S. Census Bureau has no formal role as an arbitrator of NAICS classification.  Further, Title 13, U.S. Code, Section 9 (a) prohibits the U.S. Census Bureau from releasing information on a specific business including NAICS codes.

While some states (like Alaska, Arkansas, Connecticut, Mississippi, Georgia, Louisiana, New Hampshire, and New Mexico) will ask for your NAICS Code when you organize your business, most do not.  Even if the NAICS Code is entered, there is no guarantee that will match the Census Bureau’s classification code.  Also, credit bureaus such as Dunn & Bradstreet provide a listing of an establishment’s NAICS Code, but these numbers do not necessarily match the Census Bureau record.

 

Can a NAICS Code affect programs a business is eligible for?

Absolutely.  Each industry, classified by its NAICS code, has a particular size standard to be eligible for small business funding and incentives (see tool from SBA). Size standards are usually measured by average annual receipts or average number of employees but vary widely based on exact classification.  

 

Can I have multiple NAICS Codes?

Yes and No.  The U.S. Census Bureau assigns one NAICS code to each establishment based on its primary activity (generally the activity that generates the most revenue for the establishment) to collect, tabulate, analyze, and disseminate statistical data describing the economy of the United States. Generally, the U.S. Census Bureau's NAICS classification codes are derived from information that the business establishment provided on surveys, census forms, or administrative records.

In addition, various other government agencies, trade associations, and regulation boards adopted the NAICS classification system to assign codes to their own lists of establishments for their own programmatic needs. If you question the NAICS code contained on a form received from an agency other than the U.S. Census Bureau, you should contact that agency directly.


In the process of collecting, tabulating, analyzing, and disseminating statistical data, the U.S. Census Bureau assigns and maintains only one NAICS code for each establishment based on its primary activity (generally the activity that generates the most revenue for the establishment). Since other agencies and organizations have adopted NAICS for use in programs that are not statistical (e.g., regulatory activities and procurement), it is possible that they allow for more than one NAICS code per establishment. For instance, the System for Award Management (SAM), where businesses register to become federal contractors, will accept multiple classification codes per establishment. You will need to contact these other agencies to find out what their policies are, and what NAICS codes are appropriate for your business relative to their programs. For access to a list of Federal government agencies, visit www.usa.gov/Agencies/Federal/All_Agencies/index.shtml.

 

How can I change my NAICS Code?

There is no "official" way to have a company's NAICS code changed and there is no central register that represents the "official" NAICS classification for business establishments. Various Federal government agencies maintain their own directories of business establishments and assign classification codes based on their own needs. Generally, the classification codes are derived from information that the business establishment has provided on surveys, forms, or administrative records. For this reason, the Census Bureau recommend that you contact the agency that has assigned the code that you believe should be changed. For example, if you question the NAICS code contained on a form received from the Occupational Safety and Health Administration (OSHA), you should contact the Department of Labor. For access to a list of Federal government agencies' Web sites, visit www.usa.gov/Agencies/Federal/All_Agencies/index.shtml.

 

What did Congress mean by assigned NAICS Code in the PPP legislation?

It is unclear whether Congress intended to designate the NAICS Code assigned by the Census Bureau, by the SBA, or by the IRS.  In a recent report, the General Accounting Office was deeply critical of the SBA process for assigning NAICS Code for government contracting.  (Report)

 

For More: James W. Kilbourne, Jr.  

 

Updated: December 29, 2020