Entity information:
INCOME TAXES
Income Tax Provision
 
Years Ended February 28 or 29
(In thousands)
2017
 
2016
 
2015
Current:
 

 
 

 
 

Federal
$
332,466

 
$
324,096

 
$
329,211

State
44,645

 
45,183

 
47,061

Total
377,111

 
369,279

 
376,272

Deferred:
 
 
 
 
 
Federal
4,098

 
16,398

 
(3,499
)
State
(1,774
)
 
839

 
(800
)
Total
2,324

 
17,237

 
(4,299
)
Income tax provision
$
379,435

 
$
386,516

 
$
371,973


 


Effective Income Tax Rate Reconciliation
 
Years Ended February 28 or 29
 
2017
 
2016
 
2015
Federal statutory income tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
State and local income taxes, net of federal benefit
2.7

 
3.2

 
3.4

Nondeductible and other items
0.1

 
0.2

 
0.2

Credits
(0.1
)
 
(0.1
)
 
(0.2
)
Effective income tax rate
37.7
 %
 
38.3
 %
 
38.4
 %


Temporary Differences Resulting in Deferred Tax Assets and Liabilities
 
As of February 28 or 29
(In thousands)
2017
 
2016
Deferred tax assets:
 

 
 

Accrued expenses
$
59,639

 
$
60,341

Partnership basis
106,176

 
97,586

Stock compensation
69,621

 
56,606

Derivatives
408

 
8,320

Capital loss carry forward
1,249

 
1,807

Total deferred tax assets
237,093

 
224,660

Less:  valuation allowance
(1,249
)
 
(1,807
)
Total deferred tax assets after valuation allowance
235,844

 
222,853

Deferred tax liabilities:
 
 
 
Prepaid expenses
21,148

 
19,496

Property and equipment
52,266

 
32,691

Inventory
11,468

 
8,804

Total deferred tax liabilities
84,882

 
60,991

Net deferred tax asset
$
150,962

 
$
161,862


 
Except for amounts for which a valuation allowance has been provided, we believe it is more likely than not that the availability of loss carrybacks and the results of future operations will generate sufficient taxable income to realize the deferred tax assets.  The valuation allowance as of February 28, 2017, 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)
2017
 
2016
 
2015
Balance at beginning of year
$
26,771

 
$
24,951

 
$
26,330

Increases for tax positions of prior years
2,651

 
125

 
1,549

Decreases for tax positions of prior years
(216
)
 
(853
)
 
(5,999
)
Increases based on tax positions related to the current year
4,380

 
5,256

 
5,467

Settlements
(16
)
 
(830
)
 
(612
)
Lapse of statute
(3,615
)
 
(1,878
)
 
(1,784
)
Balance at end of year
$
29,955

 
$
26,771

 
$
24,951


 
As of February 28, 2017, we had $30.0 million of gross unrecognized tax benefits, $9.4 million of which, if recognized, would affect our effective tax rate.  It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of our uncertain tax positions 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, 2016, we had $26.8 million of gross unrecognized tax benefits, $10.3 million of which, if recognized, would affect our effective tax rate.  As of February 28, 2015, we had $25.0 million of gross unrecognized tax benefits, $9.6 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 $2.7 million, $2.0 million and $1.4 million as of February 28, 2017, February 29, 2016 and February 28, 2015, 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 2014.