Standard Industrial Classification Codes (SIC Codes) | B2B Finance Glossary
What Is a Standard Industrial Classification (SIC) Code?
A Standard Industrial Classification (SIC) code is a core part of the Standard Industrial Classification system – a way that the US government categorizes industries that different companies belong to while also organizing industries by their business activities. SIC codes classify and analyze economic activity across various industries and government agencies.
SIC codes are four-digit numerical codes that promote uniformity in the presentation of statistical data collected by many different government agencies. The entire code reveals the corresponding company's line of business, while the first two digits of the SIC code identify the primary industry group associated with it. The third digit identifies the primary industry group, and the fourth digit identifies the specific industry that the company belongs to.
SIC codes are not just used in the US; they have also been adopted in the UK.
How Do SIC Codes Work?
The SIC system classifies the economy into 11 major divisions:
- Agriculture, forestry, fishing
- Transportation and public utilities
- Wholesale trade
- Retail trade
- Finance, insurance, real estate
- Public administration
- Nonclassifiable establishments
These are then divided into 83 two-digit major groups and then divided again into 416 three-digit industry groups. From there, they are separated into more than 1,000 four-digit industries.
How Are SIC Codes Used?
The government and businesses use SIC codes in many different ways.
Here's how the government uses SIC codes:
- The government uses SIC codes to organize and standardize key economic data for different state and Federal agencies and private companies.
- SIC codes are utilized in tax classification.
- SIC codes make it easier to compare data across separate government agencies.
- SIC codes are used by the SEC in the process of sorting company filings.
Here's how businesses use SIC codes:
- SIC codes can be used to organize companies for tax purposes.
- Companies use SIC codes to identify their existing and potential customers by industry.
- Marketing professionals and businesses use SIC codes to create targeted marketing campaigns.
- Banks and creditors use SIC codes to identify the industry a company belongs to when considering whether or not to extend credit.
- SIC codes are used by businesses to identify government contracts.
- Companies use SIC codes to understand the competition in their industry better; they use the codes as a way to search for similar companies so they can more easily see who is a competitor.
What Companies Have a SIC Code?
There are over 1,000 possible SIC codes, and all companies have a SIC code. It's typically required for companies that file public reports to use SIC codes when reporting. Additionally, the SEC uses it to assign review responsibility for company filing requirements.
What Is the Difference Between SIC Codes and NAICS Nodes?
In 1997, SIC codes were largely replaced by a system of six-digit codes called the North American Industry Classification System (NAICS). However, SIC codes are still the most popular way to classify industries, and NAICS codes haven't been able to fully replace the SIC code system due to the SIC system's long and deeply entrenched history.
NAICS codes were adopted to standardize industry data collection and analysis among the US, Mexico, and Canada (countries participating in the North American Free Trade Agreement). However, although NAICS codes have replaced SIC codes, many companies and government agencies still employ SIC codes to categorize the companies' industry by matching their business activity with similar companies. For example, the Securities and Exchange Commission (SEC) still uses SIC codes to signify each company's industry. Additionally, due to increased integration within the North American economy after NAFTA was created, US companies now have both SIC and NAICS codes.
Even though the government stopped updating SIC codes in 1987, private data organizations have continued to update the SIC system independently. These private data organizations have added even more classifications to this process, meaning there are now over 10,000 six-digit codes in the SIC system. In contrast, there are only 1,066 NAICS codes.
How Does the SEC use SIC Codes?
The SEC publishes a listing of standard SIC codes to assist with locating the correct reviewer of company filings based on the company's industry. Additionally, companies must report the SIC code that mode closely identifies with their operations when issuing reports.