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Income Taxes
 12 Months Ended
Feb. 28, 2021
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. On March 6, 2021 the American Rescue Plan Act of 2021 was enacted. 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)202120202019
Current:   
Federal$209,447 $225,858 $218,497 
State44,678 47,797 49,596 
Total254,125 273,655 268,093 
Deferred:   
Federal(27,971)146 3,601 
State(7,816)(1,248)(1,301)
Total(35,787)(1,102)2,300 
Income tax provision$218,338 $272,553 $270,393 
 
Effective Income Tax Rate Reconciliation
 Years Ended February 28 or 29
 202120202019
Federal statutory income tax rate21.0 %21.0 %21.0 %
State and local income taxes, net of federal benefit3.3 3.4 3.4 
2017 Tax Act— — (0.1)
Share-based compensation(1.6)(1.1)(0.3)
Nondeductible and other items0.5 0.7 0.7 
Credits(0.6)(0.5)(0.4)
Effective income tax rate22.6 %23.5 %24.3 %
Temporary Differences Resulting in Deferred Tax Assets and Liabilities
 As of February 28 or 29
(In thousands)20212020
Deferred tax assets:  
Accrued expenses and other$67,185 $39,576 
Partnership basis (1)
135,437 89,359 
Operating lease liabilities115,583 119,558 
Share-based compensation54,681 51,039 
Derivatives9,317 10,346 
Capital loss carry forward901 917 
Total deferred tax assets383,104 310,795 
Less:  valuation allowance(901)(917)
Total deferred tax assets after valuation allowance382,203 309,878 
Deferred tax liabilities:  
Prepaid expenses21,302 19,742 
Property and equipment75,383 67,589 
Operating lease assets110,006 114,212 
Inventory11,251 18,493 
Total deferred tax liabilities217,942 220,036 
Net deferred tax asset$164,261 $89,842 

 (1)    As discussed in Note 1(X), we adopted CECL during the first quarter of fiscal 2021. This adoption resulted in the recognition of a $48.7 million increase in net deferred tax assets as of March 1, 2020.

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, 2021, relates to capital loss 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)202120202019
Balance at beginning of year$30,865 $30,270 $28,685 
Increases for tax positions of prior years188 3,493 2,035 
Decreases for tax positions of prior years(4,468)(2,913)(266)
Increases based on tax positions related to the current year3,634 4,170 2,498 
Settlements(4)(326)(44)
Lapse of statute(1,218)(3,829)(2,638)
Balance at end of year$28,997 $30,865 $30,270 
 
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.  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 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.  As of February 28, 2019, we had $30.3 million of gross unrecognized tax benefits, $10.7 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 $4.7 million, $4.0 million and $3.2 million as of February 28, 2021, February 29, 2020 and February 28, 2019, 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 2016.