A franchise tax is usually a type of regressive tax. Many state governments on corporations operating within the state impose it. The corporation is usually chartered within that state. This type of tax is also levied on limited liability companies and other types of business entities. The tax is paid to the state governments. The tax rate of franchise tax is dependent on the actual state and the tax laws within that state. This amount of tax can change yearly and is often based on the income of the business. This type of tax is even applied to businesses chartered in other states in some situations. It gives the business the right to operate within the state.