Understanding the North American Industrial Classification System in Connecticut
At Turley Law, a Connecticut-based business law firm serving entrepreneurs, startups, and established companies, we regularly guide clients through classification and compliance issues. In this article, we’ll explore what NAICS is, how to find your code, and why it matters for Connecticut businesses.
For business owners in Connecticut, understanding the North American Industrial Classification System (NAICS) is more than just a bureaucratic exercise—it can directly impact your eligibility for state programs, tax classifications, and regulatory requirements. This standardized system helps categorize businesses based on their primary activities, creating a common language for government agencies, businesses, and researchers. In this blog post, we'll explore what NAICS is, how to find your code, and why it matters for Connecticut businesses.
The North American Industrial Classification System (NAICS) is a comprehensive business classification system used by federal statistical agencies to collect, analyze, and publish statistical data related to the U.S. business economy. Developed in collaboration with Canada and Mexico, NAICS replaced the older Standard Industrial Classification (SIC) system in 1997.
NAICS uses a hierarchical six-digit coding system to classify businesses according to their primary economic activities. The system is designed to be comparable across North America while providing increased detail about newer industries such as information technology services, healthcare, and specialized manufacturing.
The six-digit structure works as follows:
In Connecticut, determining your correct NAICS code is an important step for business registration and tax filing. Here's how to identify your code:
Your NAICS classification can significantly impact your business's eligibility for various Connecticut state programs:
Connecticut tax statutes specifically reference NAICS codes to determine tax treatment. For example, Conn. Gen. Stat. § 12-407 was amended to include references to specific NAICS industries (532220, 812191, 812199, and 812990) regarding miscellaneous personal services subject to sales and use tax. This demonstrates how your NAICS classification directly affects your tax obligations.
Connecticut's agricultural programs often use NAICS codes as eligibility criteria. For instance, the Electric Distribution Companies (EDCs) in Connecticut have proposed requiring that agricultural customers have a NAICS classification code beginning with "11" (Agriculture, Forestry, Fishing and Hunting) to qualify for certain programs. This requirement was developed in conjunction with the Department of Agriculture (DoAg) to ensure program accessibility for appropriate customers.
Beyond these examples, NAICS codes may affect:
To maximize your opportunities and ensure compliance:
Understanding your NAICS classification is an essential aspect of business compliance and opportunity in Connecticut. By correctly identifying your business's code and staying informed about how it affects your eligibility for state programs, you can better navigate Connecticut's regulatory landscape and potentially access valuable resources for your business.
What is the North American Industrial Classification System?
The North American Industrial Classification System (NAICS) is a comprehensive business classification system used by federal statistical agencies to collect, analyze, and publish statistical data related to the U.S. business economy. Developed in collaboration with Canada and Mexico, NAICS replaced the older Standard Industrial Classification (SIC) system in 1997.
NAICS uses a hierarchical six-digit coding system to classify businesses according to their primary economic activities. The system is designed to be comparable across North America while providing increased detail about newer industries such as information technology services, healthcare, and specialized manufacturing.
The six-digit structure works as follows:
- First two digits: Economic sector
- Third digit: Economic subsector
- Fourth digit: Industry group
- Fifth digit: Industry
- Sixth digit: National industry (country-specific detail)
- 11: Agriculture, Forestry, Fishing and Hunting (sector)
- 112: Animal Production (subsector)
- 1121: Cattle Ranching and Farming (industry group)
- 11212: Dairy Cattle and Milk Production (industry)
- 112120: Dairy Cattle and Milk Production (U.S. national industry)
How to Find Your NAICS Code
In Connecticut, determining your correct NAICS code is an important step for business registration and tax filing. Here's how to identify your code:
- Use Form CT-NAICS: Connecticut provides Form CT-NAICS specifically to help businesses determine the six-digit business activity code that best describes their principal business activity. This form aligns with the NAICS classification system.
- Identify your primary business activity: Consider what generates the most revenue for your business. If you engage in multiple activities, you should select the code that represents the activity accounting for the largest percentage of your revenue.
- Consult official resources: The U.S. Census Bureau maintains the official NAICS website (census.gov/naics) where you can search by keyword or browse the complete classification structure.
- Seek professional guidance: If you're uncertain about which code best represents your business, consider consulting with your accountant, business attorney, or the Connecticut Department of Revenue Services.
How NAICS Codes Affect Eligibility for Connecticut State Programs
Your NAICS classification can significantly impact your business's eligibility for various Connecticut state programs:
Tax Implications
Connecticut tax statutes specifically reference NAICS codes to determine tax treatment. For example, Conn. Gen. Stat. § 12-407 was amended to include references to specific NAICS industries (532220, 812191, 812199, and 812990) regarding miscellaneous personal services subject to sales and use tax. This demonstrates how your NAICS classification directly affects your tax obligations.
Agricultural Program Eligibility
Connecticut's agricultural programs often use NAICS codes as eligibility criteria. For instance, the Electric Distribution Companies (EDCs) in Connecticut have proposed requiring that agricultural customers have a NAICS classification code beginning with "11" (Agriculture, Forestry, Fishing and Hunting) to qualify for certain programs. This requirement was developed in conjunction with the Department of Agriculture (DoAg) to ensure program accessibility for appropriate customers.
Other Program Considerations
Beyond these examples, NAICS codes may affect:
- Eligibility for small business loans and grants
- Qualification for minority business enterprise programs
- Access to industry-specific incentives and tax credits
- Regulatory requirements and reporting obligations
- Participation in state procurement opportunities
Best Practices for Connecticut Businesses
To maximize your opportunities and ensure compliance:
- Verify your classification annually: As your business evolves, your primary activity may change, potentially requiring an updated NAICS code.
- Document your classification process: Maintain records of how you determined your NAICS code, especially if your business spans multiple categories.
- Research program requirements: When applying for state programs, carefully review NAICS-related eligibility criteria to ensure your business qualifies.
- Stay informed about changes: Classification systems evolve over time. The NAICS is updated every five years, with the most recent revision in 2022.
Conclusion
Understanding your NAICS classification is an essential aspect of business compliance and opportunity in Connecticut. By correctly identifying your business's code and staying informed about how it affects your eligibility for state programs, you can better navigate Connecticut's regulatory landscape and potentially access valuable resources for your business.
Correctly identifying your NAICS classification is a key step in navigating Connecticut’s business regulations and unlocking opportunities for growth. At Turley Law, we help businesses ensure their classifications align with their activities, protecting them from compliance risks and positioning them for available tax benefits, grants, and contracts.