On July 19, 2018, the Department assessed the Taxpayer for corporate income tax for tax years from 2010 to 2016 after having performed an audit. On October 12, 2018, the Taxpayer filed a timely formal protest of the assessment. The Taxpayer produced cannabis for medical use which was legal under the Lynn and Erin Compassionate Use Act for all the tax years under audit. The Department assessed the Taxpayer because it disallowed the deductions claimed on its return for business expenses which were not allowed on the federal return. Under federal law, as provided in Section 280E of the Internal Revenue Code, anyone involved in trafficking controlled substances under federal law cannot take expense deductions other than cost of goods sold. The Taxpayer, however, took these deductions on its state corporate income tax return because the sale of cannabis for medical reasons was legal in New Mexico. The Department argued that it was obligated to disallow deductions not allowable on the federal return because base income for New Mexico income tax was based on federal taxable income and that there would need to be a New Mexico statute providing for these deductions for them to be allowed. However, the Hearing Officer in the case determined that the definition of based income in statute allowed the state to modify the federal taxable income for New Mexico income tax purposes in certain circumstances. Since the intent of the legislature was that medical cannabis was permissible, and that no penalty should be assessed because an individual was engaged in the business of making and selling cannabis for medical use, the Hearing Officer determined that the deductions prevented by the federal law should be allowed by the state law. Since the legislative intent was to allow such deductions, the Hearing Officer decided the deductions should be allowed and ordered the assessment abated and the protest granted.