What Is a Principal Business Code?

Definition & Examples of Principal Business Codes

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A principal business code is a six-digit number that classifies the main type of product you sell or main type of service you offer. It is used for filing federal tax returns with the Internal Revenue Service (IRS), applying for loans with the U.S. Small Business Administration (SBA), and other U.S. government identification purposes.

What Is a Principal Business Code?

For the IRS, the principal business code for a company is determined by the business activity that generates the most revenue for it. According to the U.S. Census Bureau, it should ideally be determined by the business's highest relative share of production costs and/or capital investment but in actual practice is determined by revenue or employment.

The codes are based on the North American Industry Classification System (NAICS), which was developed jointly by the U.S., Canadian, and Mexican governments. It is updated every five years and was last updated in 2017. 

Alternate name: Professional activity code

Acronym: PBC

How Does a Principal Business Code Work?

A schedule of the principal business codes (PBCs) is given in the instructions for IRS Schedule C, which is used to report a profit or loss from a sole proprietorship or single-member LLC, and in the instructions for other business tax forms. You can also do a search for the correct code on the NAICS Association's website.

The first two digits of a PBC represent broad categories such as Agriculture, Forestry, Fishing, and Hunting (11) and Manufacturing (31-33). In the Schedule C instructions, these categories are listed alphabetically. On the NAICS website, they're listed in numerical order.

Within a category, find the description that best fits your business. For example, if you own a coffee shop, you would first go to the Accommodation, Food Services, & Drinking Places category. The best description for a coffee shop is probably "Snack & non-alcoholic beverage bars,” which has the code 722515.

If you don't see a description within a category that applies to your business, you might want to choose a description that starts with "Other" or "All other," such as "Other transit & ground passenger transportation" (485990) or "All other personal services" (812990).

How to Get a PBC

Government agencies that use PBCs typically assign a code based on information provided by a business, so in most cases, you can influence what your PBC is. For example, the Social Security Administration might assign a PBC to a new business when the owner requests an Employer Identification Number (EIN). The Census Bureau would assign a PBC when a business owner responds to a survey. And the Bureau of Labor Statistics would assign a PBC when a business contacts it regarding unemployment insurance.

The SBA sets size standards for each type of business—based on either annual receipts or average employment—that are used to determine whether a business qualifies as a “small business” for SBA loan guarantee purposes. For example, a builder of new single-family houses (236115) would qualify as a small business only if its annual sales were $39.5 million or less.  

A PBC on Your Business Tax Return

Your business’s PBC is required on all business tax returns. If you have several sources of income within your business, you will enter the one that brings in the most revenue.

If you own more than one business as a sole proprietor, you must fill out a Schedule C for each of them.

For most types of business tax return, you will need to provide both a principal business description and the PBC. The description should include the category and a few words that provide more specifics on your customers or clients. The IRS gives the following two examples: "wholesale sale of hardware to retailers” or “appraisal of real estate for lending institutions.”

On Schedule C, for sole proprietorships and single-owner LLCs:

  • Enter the principal business description on Line A.
  • Enter the PBC on Line B.

On U.S. Return of Partnership Income (Form 1065), for partnerships and multiple-member LLCs:

  • Enter the principal business description on Line A.
  • Enter a brief description of the principal product or service on Line B.
  • Enter the PBC on Line C.

On U.S. Corporation Income Tax Return (Form 1120), for C corporations:

  • Enter the PBC on Schedule K, Line 2a.
  • Enter the principal business description on Schedule K, Line 2b.
  • Enter the product or service description on Schedule K, Line 2c.

On U.S. Income Tax Return for an S Corporation (Form 1120-S):

  • Enter the PBC on Line B.
  • No principal business description is needed.

The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.

Key Takeaways

  • A principal business code is a six-digit number that classifies the main type of product you sell or main type of service you offer.
  • It is used by the Internal Revenue Service, the U.S. Small Business Administration, and other U.S. government agencies.
  • The codes are based on the North American Industry Classification System.
  • The NAICS is updated every five years and was last updated in 2017.

Article Sources

  1. Internal Revenue Service. "2019 Instructions for Schedule C," Page 17. Accessed Aug. 9, 2020.

  2. U.S. Census Bureau. "North American Industry Classification System: Frequently Asked Questions (FAQs)." Accessed Aug. 9, 2020.

  3. U.S. Census Bureau. "North American Industry Classification System." Accessed Aug. 9, 2020.

  4. Office of Management and Budget. "North American Industry Classification System, United States, 2017," Page 79. Accessed Aug. 9, 2020.

  5. U.S. Small Business Administration. "Table of Small Business Size Standards Matched to North American Industry Classification System Codes," Page 1. Accessed Aug. 9, 2019. 

  6. U.S. Small Business Administration. "Table of Small Business Size Standards Matched to North American Industry Classification System Codes," Page 5. Accessed Aug. 8, 2020.

  7. Internal Revenue Service. "2019 Instructions for Schedule C," Page 3. Accessed Aug. 9, 2020.

  8. Internal Revenue Service. "2019 Instructions for Schedule C," Page 2. Accessed Aug. 9, 2020.