We use the liability method of accounting for income taxes under which deferred tax assets and liabilities are adjusted to reflect changes in tax rates and laws in the period such changes are enacted resulting in adjustments to the current fiscal year’s provision for income taxes.

TMCC files a consolidated federal income tax return with its subsidiaries and TFSIC. TMCC files either separate or consolidated/combined state income tax returns with TMNA, TFSIC, or subsidiaries of TMCC. State income tax expense is generally recognized as if TMCC and its subsidiaries filed their tax returns on a stand-alone basis. In those states where TMCC and its subsidiaries join in the filing of consolidated or combined income tax returns, TMCC and its subsidiaries are allocated their share of the total income tax expense based on combined allocation/apportionment factors and separate company income or loss. Based on the federal and state tax sharing agreements, TFSIC and TMCC and its subsidiaries pay for their share of the income tax expense and are reimbursed for the benefit of any of their tax losses utilized in the federal and state income tax returns.

	Years ended March 31,
	2019			2018			2017
Current
Federal	$	(55	)	$	(45	)	$	136
State		76			(10	)		2
Foreign		4			3			7
Total		25			(52	)		145

Deferred
Federal		207			(2,625	)		(9	)
State		(49	)		48			5
Foreign		(1	)		-			1
Total		157			(2,577	)		(3	)
Provision (benefit) for income taxes	$	182		$	(2,629	)	$	142

A reconciliation between the U.S. federal statutory tax rate and the effective tax rate is as follows:

	Years ended March 31,
	2019			2018			2017
Provision for income taxes at U.S. federal statutory tax rate		21.0	%		31.6	%		35.0	%
State and local taxes (net of federal tax benefit)		4.6	%		4.8	%		3.6	%
Revaluation of federal deferred tax liability from TCJA		-			(371.6	)%		-
Tax rate differential from tax loss carryback		(2.8	)%		-			-
Adjustment for prior year provision to return differences		(1.4	)%		0.4	%		(2.2	)%
Effect of state tax law changes		(1.3	)%		(0.1	)%		1.5	%
Other, net		(1.5	)%		(1.7	)%		(3.2	)%
Effective tax rate		18.6	%		(336.6	)%		34.7	%

During fiscal 2018, the TCJA reduced the corporate income tax rate from 35% to 21%. As a result, our federal statutory rate for fiscal 2018 was a blended rate of 31.6% and we recorded a $2.9 billion income tax benefit from the revaluation of our net deferred tax liabilities. We completed our assessment of the impact of the TCJA within twelve months from its enactment date, and such impact has been reflected in our Consolidated Financial Statements as of and for the year ended March 31, 2019.

The amounts in Other, net in the table above include an adjustment to the provisional deemed repatriation tax for fiscal 2019, benefits from federal plug-in vehicle credits for fiscal 2019, 2018, and 2017, and fuel cell credits for fiscal 2017.

Our net deferred income tax liability consisted of the following deferred tax liabilities and assets:

	March 31,
	2019			2018
Liabilities:
Lease transactions	$	7,121		$	5,642
State taxes, net of federal tax benefit		847			856
Mark-to-market of investments in marketable securities and derivatives		44			185
Other		288			244
Deferred tax liabilities	$	8,300		$	6,927

Assets:
Provision for credit and residual value losses		361			420
Deferred costs and fees		192			186
Net operating loss and tax credit carryforwards		2,297			993
Other		22			31
Deferred tax assets		2,872			1,630
Valuation allowance		(24	)		(29	)
Net deferred tax assets	$	2,848		$	1,601
Net deferred income tax liability¹	$	5,452		$	5,326

¹ Balance includes amounts attributable to unrealized gains or losses included in accumulated other comprehensive income or loss, net of $1 million of deferred tax liabilities and $7 million of deferred tax assets at March 31, 2019 and 2018, respectively. The change in this balance is not included in total deferred tax expense.

We have deferred tax assets related to cumulative federal and state net operating loss carryforwards of $2.1 billion and $147 million at March 31, 2019, respectively, compared to $857 million in federal net operating loss deferred tax assets and $109 million in state net operating loss deferred tax assets at March 31, 2018, respectively. The federal net operating loss generated in fiscal 2018 will expire in 2038, while the federal net operating loss generated in fiscal 2019 will not expire. The federal tax credit carryforwards will expire beginning in fiscal 2028. Some state net operating loss carryforwards have no expiration while others expire beginning in fiscal 2020.

The deferred tax assets related to foreign tax credit and state tax net operating loss carryforwards are reduced by a valuation allowance of $24 million and $29 million at March 31, 2019 and 2018, respectively. The determination of the valuation allowance is based on management’s estimate of future taxable income during the respective carryforward periods. Apart from the valuation allowance, we believe that the remaining deferred tax assets will be realized in full. The amount of the deferred tax assets considered realizable could be reduced if management’s estimates change.

We have made an assertion of permanent reinvestment of earnings from our foreign subsidiary; as a result, other than the deemed repatriation tax that is provided pursuant to the TCJA, state and local taxes have not been provided for unremitted earnings of our foreign subsidiary. At March 31, 2019 and 2018, these unremitted earnings totaled $233 million and $223 million, respectively. Determination of the amount of the deferred state and local tax liability is not practicable, and accordingly no estimate of the unrecorded deferred state and local tax liability is provided.

Although we do not foresee any events causing repatriation of earnings, possible examples may include but are not limited to parent company capital needs or exiting the business in the foreign country.

Our share of the income tax payable or receivable in those states where we filed consolidated or combined returns with TMNA and its subsidiaries was not significant for both March 31, 2019 and 2018. Additionally, our federal and state income tax payable or receivable from TMCC affiliated companies, including TFSIC, Toyota Financial Savings Bank (“TFSB”), and Toyota Financial Services Securities USA Corporation, was not significant for both March 31, 2019 and 2018.

The guidance for the accounting and reporting for income taxes requires us to assess tax positions in cases where the interpretation of the tax law may be uncertain. Unrecognized tax benefits were not significant as of March 31, 2019, 2018 and 2017. We do not have any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within 12 months.

We accrue interest, if applicable, related to uncertain income tax positions in interest expense. Statutory penalties, if applicable, accrued with respect to uncertain income tax positions are recognized as an addition to the income tax liability. For each of fiscal 2019, 2018, and 2017, accrued interest was not significant and no penalties were accrued.

As of March 31, 2019, we remained under IRS examination for fiscal 2019 and 2018. The IRS examination for fiscal 2017 was concluded in fiscal 2019.