Business activity code

Business activity code (called also NACE code in European Union) is specific and detailed code that each registered company has. It gives information about principal area of company operations and it supports classification of enterprises. The code determines from which activity business gains the highest sum of gross receipts. It is also used for tax purposes .

Areas of business activities

Below are listed all business activities based on the North American Industry Classification System. Under each area such as Manufacturing, there are categories such as Food manufacturing etc. Codes are assigned to subcategories, for example under Food manufacturing there is assigned 8 subcategories, first of them is Animal Food Mfg with code 3111100. In total there is more than 400 codes which specify business areas:

• Agriculture, Forestry, Fishing, and Hunting
  • Crop Production
  • Animal Production
  • Forestry and Logging
  • Fishing, Hunting and Trapping
  • Support Activities for Agriculture and Forestry
• Mining
• Utilities
• Construction
  • Construction of Buildings
  • Heavy and Civil Engineering Construction
  • Specialty Trade Contractors
• Manufacturing
  • Food Manufacturing
  • Beverage and Tobacco Product Manufacturing
  • Textile Mills and Textile Product Mills
  • Apparel Manufacturing
  • Leather and Allied Product Manufacturing
  • Wood Product Manufacturing
  • Paper Manufacturing
  • Printing and Related Support Activities
  • Petroleum and Coal Products Manufacturing
  • Chemical Manufacturing
  • Plastics and Rubber Products Manufacturing
  • Nonmetallic Mineral Product Manufacturing
  • Primary Metal Manufacturing
  • Fabricated Metal Product Manufacturing
  • Machinery Manufacturing
  • Computer and Electronic Product Manufacturing
  • Electrical Equipment, Appliance, and Component Manufacturing
  • Transportation Equipment Manufacturing
  • Furniture and Related Product Manufacturing
  • Miscellaneous Manufacturing
• Wholesale Trade
  • Merchant Wholesalers, Durable Goods
  • Merchant Wholesalers, Nondurable Goods
  • Wholesale Electronic Markets and Agents and Brokers
• Retail Trade
  • Motor Vehicle and Parts Dealers
  • Furniture and Home Furnishings Stores
  • Electronics and Appliance Stores
  • Building Material and Garden Equipment and Supplies Dealers
  • Food and Beverage Stores
  • Health and Personal Care Stores
  • Gasoline Stations
  • Clothing and Clothing Accessories Stores
  • Sporting Goods, Hobby, Book, and Music Stores
  • General Merchandise Stores
  • Miscellaneous Store Retailers
  • Nonstore Retailers
• Transportation and Warehousing
  • Air, Rail, and Water Transportation
  • Truck Transportation
  • Transit and Ground Passenger Transportation
  • Pipeline Transportation
  • Scenic & Sightseeing Transportation
  • Support Activities for Transportation
  • Couriers and Messengers
  • Warehousing and Storage
• Information
  • Publishing Industries (except Internet)
  • Motion Picture and Sound Recording Industries
  • Telecommunications
  • Broadcasting (except Internet)
  • Data Processing Services
  • Other Information Services
• Finance and Insurance
  • Depository Credit Intermediation
  • Nondepository Credit Intermediation
  • Activities Related to Credit Intermediation
  • Securities, Commodity Contracts, and Other Financial Investments and Related Activities
  • Insurance Carriers and Related Activities
  • Funds, Trusts, and Other Financial Vehicles
• Real Estate and Rental and Leasing
  • Real Estate
  • Rental and Leasing Services
  • Lessors of Nonfinancial Intangible Assets (except copyrighted works)
• Professional, Scientific, and Technical Services
  • Legal Services
  • Accounting, Tax Preparation, Bookkeeping, and Payroll Services
  • Architectural, Engineering, and Related Services
  • Specialized Design Services
  • Computer Systems Design and Related Services
  • Other Professional, Scientific, and Technical Services
• Management of Companies (Holding Companies)
• Administrative and Support and Waste Management and Remediation Services
  • Administrative and Support Services
  • Waste Management and Remediation Services
• Educational Services
• Health Care and Social Assistance
  • Offices of Physicians and Dentists
  • Offices of Other Health Practitioners
  • Outpatient Care Centers
  • Medical and Diagnostic Laboratories
  • Home Health Care Services
  • Other Ambulatory Health Care Services
  • Hospitals
  • Nursing and Residential Care Facilities
  • Social Assistance
• Arts, Entertainment, and Recreation
  • Performing Arts, Spectator Sports, and Related Industries
  • Performing Arts, Spectator Sports, and Related Industries
  • Amusement, Gambling, and Recreation Industries
• Amusement, Gambling, and Recreation Industries
  • Accommodation
  • Food Services and Drinking Places
• Other Services
  • Repair and Maintenance
  • Personal and Laundry Services
  • Religious, Grantmaking, Civic, Professional, and Similar Organizations

Examples of Business activity code use

• Retail Trade: Retail trade is the sale of goods and services from individual providers to end users. This code includes activities such as clothing and shoe stores, convenience stores, and online stores.
• Construction: This code includes activities such as residential and non-residential building construction, civil engineering and specialty trade contractors.
• Manufacturing: Manufacturing is the production of goods in large quantities. This code includes activities such as food and beverage manufacturing, chemical manufacturing, automotive manufacturing, and apparel manufacturing.
• Transportation and Warehousing: This code includes activities such as freight transportation, warehousing and storage, and courier activities.
• Professional, Scientific, and Technical Services: This code includes activities such as legal services, accounting services, computer services, and advertising services.

Advantages of Business activity code

Business activity code can be very beneficial for companies providing various services and products. It helps to classify companies and to differentiate them from competitors. Here are some of its advantages:

• It enables the government to measure the economic activity of the nation and to collect taxes from businesses.
• It helps to track and analyze the performance of businesses in different industries.
• It provides a clear view of the company’s core business activities and helps to design strategies for growth.
• It helps to identify opportunities for new business partnerships and collaborations.
• It helps to develop customized marketing and promotional activities.
• It can be used to identify customers and target potential markets.

Limitations of Business activity code

Business activity codes have their limitations:

• These codes are limited to the classification of a company’s primary activities and may not provide an accurate picture of the company’s full scope of operations.
• Since the code is determined based on the highest sum of gross receipts, it may not accurately reflect the amount of time and resources a company spends on each activity.
• Business activity codes are constantly changing, so companies must stay up to date with the classification system in order to remain compliant.
• The code can be difficult to interpret and may require a professional to accurately understand the implications.
• Additionally, codes vary by country and may not be consistent from one region to another.

Other approaches related to Business activity code

Other approaches related to Business activity code include:

• Activity Based Costing (ABC) - a method of costing that assigns a cost to each activity of a company to better determine the cost of each product / service.
• Activity-Based Management (ABM) - a management approach that uses ABC to focus on activities that produce the most value and identify areas of improvement.
• Benchmarking - a process used to compare the performance of a business to industry averages. This can help identify which areas of the business are underperforming and need improvement.
• Economic Value Added (EVA) - a metric used to evaluate the financial performance of a company. It is calculated by subtracting the cost of capital from the company's operating profit.
• Process Mapping - a tool used to visually represent the different processes and activities within a company. It can be used to identify inefficiencies and areas for improvement.

In summary, there are several approaches related to Business Activity Code that can help companies to evaluate and improve their performance. These approaches include Activity Based Costing, Activity-Based Management, Benchmarking, Economic Value Added, and Process Mapping.

Footnotes

Business activity code — recommended articles

Inventory accounting — Cost element — Business segment — Operating cycle — Contract costing — Segment margin — Cost of goods purchased — Product — Secondary activities

References

• Department of the Treasury Internal Revenue Service, (2019), 2018 Instructions for Form 1120. U.S. Corporation Income Tax Return, Cat. No. 11455T, Department of the Treasury Internal Revenue Service
• Department of the Treasury Internal Revenue Service, (2006), Return of Partnership Income, Publication Catalog Number 4 4505 (Rev. 03-2007) 7622W Cat. No. 47622W, Department of the Treasury Internal Revenue Service
• Franchise Tax Board State of California, (2015), California Forms & Instructions. 2015 Corporation Tax Booklet, Franchise Tax Board State of California
• Green G. D. (1997), ISO 9000 Quality Systems Auditing, Gower Publishing, Ltd.
• Kess S., Weltman B., (2008), Preparation and Planning Guides, CCH

Author: Ewelina Gał