Businesses Face NAICS Classification Risks and Opportunities in State Tax and Incentive Systems

States increasingly borrow North American Industry Classification System (NAICS) code classifications to determine the scope of when a business is subject to tax or eligible for an exemption or incentive. While this generally provides more certainty than a state simply making its own definitions, th...

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Bibliographic Details
Published inJournal of Multistate Taxation and Incentives Vol. 25; no. 10; p. 39
Main Author Boch, Matthew C
Format Trade Publication Article
LanguageEnglish
Published Boston Thomson Reuters (Tax & Accounting) Inc 01.02.2016
Subjects
Classification
Economic indicators
Incentives
Jurisdiction
North American Industry Classification System
Risk management
Sales taxes
State taxes
Tax exemptions
Tax incentives
Web portals
United States > US
Online AccessGet full text
ISSN1533-3124

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Summary:States increasingly borrow North American Industry Classification System (NAICS) code classifications to determine the scope of when a business is subject to tax or eligible for an exemption or incentive. While this generally provides more certainty than a state simply making its own definitions, the trend poses risks for taxpayers because a classification claimed in one context may be used against the taxpayer in another context. It also can limit administrators' ability to use incentives and exemptions to further policy goals. Taxpayers should evaluate their NAICS positions on a holistic basis and consider consistency, risks and opportunities. Leaving NAICS codes to be determined at whim by whomever is filling out a form poses substantial risks to a business. For taxes, NAICS classifications are used to determine taxability, particularly in the case of sales taxes on enumerated services.
ISSN:1533-3124