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Income Taxes
 12 Months Ended
Feb. 28, 2023
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 evaluated the tax provisions of these acts as well as new IRS guidance issued. The most significant impacts to the company included the employee retention tax credit and payroll tax deferral provisions of the CARES Act.

On August 16, 2022, federal legislation commonly referred to as the Inflation Reduction Act of 2022 (“IRA”) was enacted. The most significant provisions of the IRA are the corporate alternative minimum tax and the share repurchase tax. We have evaluated the tax provisions as well as new IRS guidance and do not expect the legislation to have a material impact on our results of operations.

Income Tax Provision
 Years Ended February 28
(In thousands)202320222021
Current:   
Federal$128,994 $264,194 $209,447 
State29,598 61,855 44,678 
Total158,592 326,049 254,125 
Deferred:   
Federal(1,118)10,560 (27,971)
State(5,432)4,440 (7,816)
Total(6,550)15,000 (35,787)
Income tax provision$152,042 $341,049 $218,338 
 
Effective Income Tax Rate Reconciliation
 Years Ended February 28
 202320222021
Federal statutory income tax rate21.0 %21.0 %21.0 %
State and local income taxes, net of federal benefit3.4 3.7 3.3 
Share-based compensation— (1.8)(1.6)
Nondeductible and other items1.5 0.7 0.5 
Credits(2.0)(0.7)(0.6)
Effective income tax rate23.9 %22.9 %22.6 %
Temporary Differences Resulting in Deferred Tax Assets and Liabilities
 As of February 28
(In thousands)20232022
Deferred tax assets:  
Accrued expenses and other$102,611 $122,791 
Allowance for loan losses123,636 104,454 
Prepaid expenses3,484 4,236 
Net operating loss carryforwards and other tax attributes35,184 38,637 
Operating lease liabilities146,006 144,693 
Share-based compensation37,165 40,579 
Capital loss carry forward847 745 
Total deferred tax assets448,933 456,135 
Less:  valuation allowance(1,305)(1,455)
Total deferred tax assets after valuation allowance447,628 454,680 
Deferred tax liabilities:  
Intangibles47,072 51,088 
Property and equipment113,015 115,263 
Operating lease assets137,617 137,095 
Inventory14,512 19,147 
Derivatives54,672 11,156 
Total deferred tax liabilities366,888 333,749 
Net deferred tax asset$80,740 $120,931 

As of the fiscal year ended February 28, 2023, CarMax’s net operating loss carryforwards and other tax attributes include a deferred tax asset of $5.7 million related to U.S. federal net operating loss carryforwards that have no expiration; a deferred tax asset of $12.6 million, net of valuation allowances, related to U.S. federal tax credit carryforwards, which expire between 2023 and 2041; a deferred tax asset of $3.0 million, related to state net operating loss carryforwards, which generally expire between 2023 and 2038; and a deferred tax asset of $12.5 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, 2023, 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
(In thousands)202320222021
Balance at beginning of year$24,765 $28,997 $30,865 
Increases for tax positions of prior years114 432 188 
Decreases for tax positions of prior years(19)(5,056)(4,468)
Increases based on tax positions related to the current year3,813 2,657 3,634 
Settlements(79)(391)(4)
Lapse of statute(1,502)(1,874)(1,218)
Balance at end of year$27,092 $24,765 $28,997 
 
As of February 28, 2023, we had $27.1 million of gross unrecognized tax benefits, $10.6 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, 2022, we had $24.8 million of gross unrecognized tax benefits,
$8.5 million of which, if recognized, would affect our effective tax rate.  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. 

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 $4.0 million, $3.4 million and $4.7 million as of February 28, 2023, February 28, 2022 and February 28, 2021, 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 2019.