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On the February 18, 2019, the Department assessed the Taxpayer for corporate income tax for the 2014 through 2016 tax years. On May 15, 2019, the Taxpayer submitted a formal protest. The Taxpayer was in the business of producing and selling cannabis for medical use. The Department assessed the Taxpayer because it disallowed the business expense deductions that were taken on its tax returns. Under federal law, as provided in Section 280E of the Internal Revenue Code, anyone involved in trafficking an illegal substance under federal law cannot take most deductions and credits that would normally be allowable on the federal return. The Taxpayer, however, took these deductions on its state corporate income tax return when determining base income because the sale of cannabis for medical reasons was legal in New Mexico. After the audit, the Department disallowed the deductions that would not have been allowed on the federal return because the base income for New Mexico income tax was by definition based on the federal taxable income. But the Hearing Officer determined that the definition did provide some leeway to allow the state to apply its own law and modify the federal taxable income for New Mexico where appropriate. The intent of the legislature, that medical cannabis is permissible, and that no penalty should be assessed because an individual was engaged in the business of making and selling cannabis for medical use, as stated in the Compassionate Use Act, suggested to the Hearing Officer that the deductions prevented by the federal law should be allowed by the state law. Since the intent of the legislature was to allow such deductions, the Hearing Officer decided the deduction was allowable and ordered the assessment abated and the protest granted.