Service providers are entitled to use the AMA gross profits method and deduct their cost of services provided.

Taxpayers without a federal cost of good sold are not precluded from using the gross profits method to compute their AMA.  Instead of using federal cost of goods sold, these taxpayers must compute their cost of goods sold using some “other input or expenditure” as may be necessary to equitably measure their business activity.  N.J.S.A. § 54:10A-5a(a). 

Under the gross profits method, the AMA tax base is New Jersey gross receipts less the taxpayer’s cost of goods sold.  For this purpose, “cost of goods sold” means the taxpayer’s cost of goods sold as computed for federal income tax purposes or some “other input or expenditure, as determined by the director, as may be necessary to equitably measure the business activity of the taxpayer,” allocated to New Jersey using either the taxpayer’s New Jersey allocation factor or, at the taxpayer’s option, just its receipts factor.  N.J.S.A. § 54:10A-5a(a); N.J.A.C. 18:7-18.1. 

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