In essence, a franchise tax is a government
tax charged by individual U.S. states to corporations, limited
liability companies and partnerships that have nexus in the state.
Franchise fees are based on the net worth or capital held by the
entity. Basically, the franchise tax charges corporations for the
privilege of doing business in that state.
Franchise tax, very much like federal taxes,
are imposed annually. And, those companies that avoid franchise
taxes can actually be disqualified from doing business in that
state. However, it is important to note that a franchise tax is not
a tax on the franchise. It is just a form to call taxes on business
income.