Choosing A NAICS code

Great news! You’re ready to get your business license or file your Articles of Incorporation. So what’s next? If you haven’t selected your NAICS code yet, you won’t be able to complete your application. What’s a NAICS code? Don’t fret, in less than 5 minutes you could be an expert in how to select your code and when you might need a second one.

First thing, some definitions:

(NAICS) stands for North American Industry Classification System. The system is an multi-national attempt to classify enterprises by their intended economic activity.business-841174_1280

(LOB) stands for Line of Business. It refers to the first two digits of the NAICS code, and designates the category heading for the economic activity that an enterprise is in.

So for an example, the code 238140 is for Masonry Contractors. The first two digits, 23, is the line of business code for construction.

So what?

While you will be required to choose a full six digit code, your printed business license will only show the two digit line of business (LOB) code. The full code will appear when the license is viewed online.   This is important because while you may be licensed for 451211 (Book Stores) you are technically also licensed for 448219 (Shoe Stores). In other words, closely related NAICS codes may be under the same LOB, and if so, you may be licensed for both activities with the one license.

Why would I ever get two Licenses?

If you provide products or services that are quite different, it may be that they would not be covered under the same LOB. For instance, say you have a Chiropractic office that also sells vitamins. Most likely you would be license under your primary activity 621310 (Offices of Chiropractors). The code for Vitamin Stores is 446191. In this example, you would not be covered for both activities because they fall under different LOBs. Alaska Statutes require you to have a license for each LOB you operate in. Until recently, this meant you would have to buy a second business license. Thankfully, in 2014 the Legislature passed HB 32 amending AS 43.70.020(a) to allow for one license to cover multiple lines of business. Now the Chiropractor above can easily list both LOBs on one license.

So how do I find my LOB?

Great question. First thing I recommend is to go here: https://www.census.gov/eos/www/naics/ . This link will direct you to the US Census Bureau’s NAICS search engine. Here you can simply enter what you are doing and choose from what comes up. You will want to look through the list of codes that come up, as some key words may cover several LOBs. As an example, looking up “Shirts” brings up a list of several dozen potential codes including manufacturing of shirts, to wholesale, and retail shirt stores. Be careful to select the code that more closely represents the activity you are looking to do.

*NOTE: The State of Alaska uses the NAICS codes from 2007. Make sure you select the correct search box, or you might find the wrong code.

Once you have found your code, compare it to the actual lists of codes the State of Alaska uses. That list can be found here: https://www.commerce.alaska.gov/web/portals/5/pub/BUS_NAICS_Codes.pdf . Look up the code you found in the first step to verify it is applicable in the State of Alaska. Repeat this step if you have more than one LOB.

*NOTE: When looking through the PDF if the code you have selected is bolded it may require a professional license. Before moving forward with the registration, go here to view the list of professions that require professional licensure: https://www.commerce.alaska.gov/web/cbpl/ProfessionalLicensing.aspx

 

Where do I go for more information?

As always, it is recommended that you verify all information with your legal professional. Additional information can be found at the following links:

Alaska Division of Corporations, Business and Professional Licensing: https://www.commerce.alaska.gov/web/cbpl

Business Licensing Statutes and Regulations: https://www.commerce.alaska.gov/web/portals/5/pub/BusinessLicenseStatutes.pdf

More information on starting a business in Alaska: https://www.commerce.alaska.gov/web/portals/5/pub/EstablishingABusiness.pdf

Division of Corporations, Business and Professional Licensing contact information:

Email businesslicense@alaska.gov

Phone 269-8160 (Anchorage) 465-2550 (Juneau)

That’s it, you are ready to select your code and get your business license. Remember that you are not alone. The Alaska Small Business Development Center (SBDC) has a team of top notch Business Advisors that stand ready to assist you in your new business. Find out more about the Alaska SDBC’s offerings, and to get registered for our free Starting A Business Class, take a look at our website www.AKSBDC.org

 

 

Allan Carroway 2Written by Anchorage Business Advisor Allan Carraway