What is a Business Activity Code?
A business activity code has the role of classifying a company according to its primary activity.3 min read
2. Choosing a Code
A business activity code has the role of classifying a company according to its primary activity. It also helps IRS audits by providing groups to which they can compare a certain business with similar ones. The activity code must be stated in section C of IRS Form 1040, and there are may be different codes that companies operating in certain businesses, like arts and crafts, can fall under. The activity codes are connected to the six-digit codes provided by the North American Industry Classification System (NAICS).
Different NAICS Codes and How to Use Them
- 721 Accommodations is used when a company provides accommodation of any sort for people who are traveling for leisure, business purposes, or any other reason.
- 56 Administrative and Support Services is for companies that provide the service of supporting everyday operations for other businesses.
- 71 Arts, Entertainment, and Recreation is used by businesses who provide entertainment services and any cultural or recreational activity for their customers.
- 711100 - Performing Arts Companies is also reserved for entertainment purposes but is limited to companies that provide all kinds of live representations and performances done by professionals. That can mean any form of musical ensemble or artist, shows featuring live performers such as dancers or comedians, or other forms of live entertainment, such as theaters, circuses, or carnivals.
- 811, 812, 813 Certain Services refers to companies that provide any form of repair, maintenance, or laundry cleaning services, as well as public organizations such as religious or civic groups.
- 23 Construction is reserved for companies involved in the building or pre-building preparation of any kind of building or engineering project, such as bridges or utility systems.
- 521, 522, 523 Financial Services is for companies that either directly engage in financial deals or facilitate them.
- 722 Food Services is used by any company that prepares meals, snacks, or beverages that are meant to be sold to customers and consumed either on the spot or at one point in the future. Depending on the exact purpose of the business, specific sub-codes exist to differentiate food caterers, bars, full or limited service restaurants, cafeterias, or snack bars that do not serve alcoholic beverages.
- 51 Information is for companies that create and distribute information of any kind, as well as cultural products.
- 524 Insurance relates to insurance and risk management.
- 31, 32, 33 Manufacturing is used by businesses that engage in any activity that implies transforming raw materials into finished goods. It also covers activities that only imply the assembly of already manufactured component parts into a finished article. Depending on the specifics of the materials used, there are sub-codes for apparel manufacturing, as well as for metal products, furniture, paper, clothes or other textiles, wood products, clay products, footwear, glass products, and other non-metallic items.
- 61, 62 Private Education and Health Services refers to any type of training or tutoring by an entity not related to the state, as well as companies providing healthcare and social services.
- 54 Professional, Scientific, and Technical Services is used by companies that provide their customers with highly specialized services of a professional, scientific, or technical nature.
- 53 Real Estate and Rental and Leasing Services is for any form of services for renting or leasing assets, both tangible or intangible.
- 532310 - General Rental Centers refers to companies that rent any kind of equipment, usually short term.
- 44, 45 Retail Trade is for reselling any type of product or property, without modifying its characteristics.
- 48, 49 Transportation and Warehousing is used when transporting passengers and goods or storing goods.
- 22 Utilities is for providers of electric power, natural gas, steam supply, or water, but also for removers of sewage or waste.
- 42 Wholesale Trade is for companies that wholesale goods or properties.
Choosing a Code
Picking the right code for your specific business is simply a matter of determining which one is the most accurate description of the business' main activity. If you create or sell multiple products or services, a first step is to determine what your general domain is, like manufacturing or retailing. After that, analyzing and determining what part of your business generates the largest revenues will lead you to pick the right business activity code.
If you need help with picking a business activity code, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.