A franchise tax is charged by a state to corporations, partnerships, and LLC's for the privilege of incorporating or doing business in that state. Franchise taxes, like income taxes, are usually imposed annually. Failure to pay franchise taxes can result in a business becoming disqualified from doing business in a state.
Franchise taxes are imposed on companies that do business in a state; this is the concept of nexus, or location. Determining nexus is complicated, including whether or not the business sells in the state, has employees in the state, or has a physical location in the state.
A business may do business in several states (depending on how the state views the business), and usually the business is formally registered in the state, or in multiple states. If your business is formally registered in several states, you will may have to pay franchise taxes in several states, if you do business in those states.
A franchise tax is what's called a "privilege" tax, meaning that it is imposed on entities for the privilege of doing business in the state. Some states (like Louisiana) have both income taxes and franchise taxes. This makes the effective tax rate in these states higher, and it has the effect of driving business from the state.
Each state has different criteria for determining what type of business entities must pay franchise taxes, the basis for the tax (either income or capital), and the tax rate.
States base franchise taxes on differing criteria:
income (thus, the franchise tax is really an income tax)
par value of stock, shares of stock, or value of capital stock
assess value of real and tangible personal property or net investment in tangible personal property
gross receipts (this tax is really a gross receipt tax)