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Income Taxes
 12 Months Ended
Feb. 28, 2022
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
During fiscal 2021, new legislation was enacted to provide relief to businesses in response to the COVID-19 pandemic, including the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the Taxpayer Certainty and Disaster Tax Relief Act. The American Rescue Plan Act of 2021 and the Infrastructure Investment and Jobs Act were enacted on March 6, 2021 and November 15, 2021, respectively. We have evaluated the tax provisions of these acts as well as new IRS guidance issued. While the most significant impacts to the company include the employee retention tax credit and payroll tax deferral provisions of the CARES Act, we do not expect recent IRS guidance or the legislation to have a material impact on our results of operations.

Income Tax Provision
 Years Ended February 28 or 29
(In thousands)202220212020
Current:   
Federal$264,194 $209,447 $225,858 
State61,855 44,678 47,797 
Total326,049 254,125 273,655 
Deferred:   
Federal10,560 (27,971)146 
State4,440 (7,816)(1,248)
Total15,000 (35,787)(1,102)
Income tax provision$341,049 $218,338 $272,553 
 
Effective Income Tax Rate Reconciliation
 Years Ended February 28 or 29
 202220212020
Federal statutory income tax rate21.0 %21.0 %21.0 %
State and local income taxes, net of federal benefit3.7 3.3 3.4 
Share-based compensation(1.8)(1.6)(1.1)
Nondeductible and other items0.7 0.5 0.7 
Credits(0.7)(0.6)(0.5)
Effective income tax rate22.9 %22.6 %23.5 %
Temporary Differences Resulting in Deferred Tax Assets and Liabilities
 As of February 28
(In thousands)20222021
Deferred tax assets:  
Accrued expenses and other$122,791 $67,185 
Allowance for loan losses104,454 — 
Partnership basis— 135,437 
Prepaid expenses4,236 — 
Net operating loss carryforwards and other tax attributes38,637 — 
Operating lease liabilities144,693 115,583 
Share-based compensation40,579 54,681 
Derivatives— 9,317 
Capital loss carry forward745 901 
Total deferred tax assets456,135 383,104 
Less:  valuation allowance(1,455)(901)
Total deferred tax assets after valuation allowance454,680 382,203 
Deferred tax liabilities:  
Intangibles51,088 — 
Prepaid expenses— 21,302 
Property and equipment115,263 75,383 
Operating lease assets137,095 110,006 
Inventory19,147 11,251 
Derivatives11,156 — 
Total deferred tax liabilities333,749 217,942 
Net deferred tax asset$120,931 $164,261 

During the fiscal year ended February 28, 2022, our fully consolidated partnership was terminated as a result of an internal restructuring. We removed the deferred tax asset reflecting the investment in the partnership and recorded the associated temporary differences in the underlying assets and liabilities. The termination of the partnership is the primary driver of the changes in deferred tax assets and liabilities associated with accrued expenses and other, allowance for loan losses, prepaid expenses and property and equipment. Overall, this adjustment to the deferred tax assets and liabilities resulted in an immaterial impact to the income statement.

During the fiscal year ended February 28, 2022, we completed our acquisition of Edmunds. As a result of this transaction, we acquired certain net operating losses and other tax attributes which are reflected as deferred tax assets, and certain intangible assets which are reflected as deferred tax liabilities. This includes a deferred tax asset of $10 million related to U.S. federal net operating loss carryforwards that have no expiration; a deferred tax asset of $13 million, net of valuation allowances, related to U.S. federal tax credit carryforwards, which expire between 2023 and 2041; a deferred tax asset of $2 million, related to state net operating loss carryforwards, which generally expire between 2022 and 2038; and a deferred tax asset of $12 million related to state tax credit carryforwards that have no expiration.

Except for amounts for which a valuation allowance has been provided, we believe it is more likely than not that the results of future operations and the reversals of existing deferred taxable temporary differences will generate sufficient taxable income to realize the deferred tax assets.  The valuation allowance as of February 28, 2022, relates to capital loss and research and development credit carryforwards that are not more likely than not to be utilized prior to their expiration.
 
Reconciliation of Unrecognized Tax Benefits
 Years Ended February 28 or 29
(In thousands)202220212020
Balance at beginning of year$28,997 $30,865 $30,270 
Increases for tax positions of prior years432 188 3,493 
Decreases for tax positions of prior years(5,056)(4,468)(2,913)
Increases based on tax positions related to the current year2,657 3,634 4,170 
Settlements(391)(4)(326)
Lapse of statute(1,874)(1,218)(3,829)
Balance at end of year$24,765 $28,997 $30,865 
 
As of February 28, 2022, we had $24.8 million of gross unrecognized tax benefits, $8.5 million of which, if recognized, would affect our effective tax rate.  It is reasonably possible that the amount of the unrecognized tax benefit will increase or decrease during the next 12 months; however, we do not expect the change to have a significant effect on our results of operations, financial condition or cash flows.  As of February 28, 2021, we had $29.0 million of gross unrecognized tax benefits, $7.6 million of which, if recognized, would affect our effective tax rate.  As of February 29, 2020, we had $30.9 million of gross unrecognized tax benefits, $9.2 million of which, if recognized, would affect our effective tax rate. 

Our continuing practice is to recognize interest and penalties related to income tax matters in SG&A expenses.  Our accrual for interest and penalties was $3.4 million, $4.7 million and $4.0 million as of February 28, 2022, February 28, 2021 and February 29, 2020, respectively.
 
CarMax is subject to U.S. federal income tax as well as income tax of multiple states and local jurisdictions.  With a few insignificant exceptions, we are no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years prior to fiscal 2018.