A business activity code is a unique identifier that provides information about the primary activities at a business. Several coding systems are in use around the world in different nations and government agencies. Some nations with close business ties, like members of the European Union, have developed standardized codes for all members to use for the benefit of rapid and easy comparison. An example of such a system is the North American Industry Classification System (NAICS) used in Canada, the United States, and Mexico.
The number of digits in a business activity code can vary, depending on the system. Most systems have codes that become progressively more refined. In NAICS, for example, the first two digits offer information about the economic sector, and the third covers the subsector. A fourth digit provides an industry group, and a fifth offers a specific classification. Businesses can add a sixth digit unique to their nation to provide more detail about their business activities.
Such codes are used for a variety of purposes. One is statistics and information gathering, like in a national Census. Standardized codes create easy categories to use in statistical classification to process very large volumes of data. For example, self-reported responses on a survey might include “peach grower,” “nectarine farmer,” and “stone fruit grower.” These can be difficult to sift through, but if they also use a business activity code for fruit farmers, or stone fruit farmers, depending on how specific a nation's codes are, statisticians can easily process the information.
For the purpose of taxation, a business activity code can be important. Members of certain industries may be entitled to tax breaks, incentives, and other benefits. They can file with the relevant business activity code to access these. Tax agencies may find it helpful to maintain their own internal statistics as well, taking note of growth and shrinkage in various economic sectors. Falsely claiming an activity code can result in legal penalties.
Determining a business activity code usually requires looking it up in a codebook. Business owners can start with broad categories, like economic sector, such as the tech industry or agriculture. From there, they can drill down through a progressive series of options. Eventually, they should arrive at an activity code that accurately describes the kinds of products and services their companies offer. If a business offers several different things that may not fit neatly under one code, it may be advisable to consult an attorney or accountant to get specific assistance.