Delaware: A great place to vacation.

Unfortunately for Pennsylvania, our big businesses are taking a permanent vacation there.

Escaping through a loophole in Pennsylvania law, corporations that do business in this state can and do transfer their profits to subsidiaries based in Delaware, which has a far more business-friendly tax structure.

As a Sunday News story last week pointed out, that means thousands of corporations avoid paying Pennsylvania's 9.99 percent corporate net income tax.

How many? A state official estimated that nearly 95,000 companies paid no income tax in 2005, and that about 45 percent of those had no taxable profits.

But that leaves another 52,000-plus companies — some of which leaped through the Delaware loophole. No one knows how many. But it's a legal strategy, so why not?

How does Pennsylvania close the Delaware loophole?

Unless this state is willing to match Delaware's free-and-easy tax structure —an unlikely prospect — Pennsylvania probably never will be able to block all the flow of corporate profits to our neighbor.

Gov. Ed Rendell supports "combined reporting," which would bar companies from treating their Delaware subsidiaries as separate entities. He has proposed a mix of combined reporting and a lower rate for the corporate net income tax, which is second highest in the nation.

Business advocates argue that combined reporting would have the unintended consequence of encouraging more corporations to flee Pennsylvania entirely.

We doubt any state will ever be able to close its business tax loopholes so firmly that smart tax accountants and lawyers won't be able to figure out a way to wiggle through. But surely Pennsylvania can do a better job of collecting income taxes from corporations.

After all, the state has been running an intimidating campaign aimed at shaking down taxpayers who owe individual income tax. Why the little guys and not the big ones?

Combined reporting is an option that 23 other states already have in place, so it seems like a logical step. It's a step, however, that needs to be paired with other steps to make Pennsylvania's business climate a little bit more like Delaware's.

The corporate income tax rate has to come down, for starters. Gov. Rendell has proposed lowering it to 8.99 percent, but that's still too high. The nationwide average is more like 6.23 percent, and a bipartisan commission appointed by the governor in 2004 recommended a tax between 6 and 7 percent.

A lower tax rate might mean a hit in state revenues, at least at first. But with so many companies avoiding the tax entirely, at an estimated cost to state coffers of $450 million a year, what do we have to lose?

We don't want to see big business in Pennsylvania getting off tax-free. But without those businesses, Pennsylvanians don't have jobs. Which means the state loses even more individual income tax revenue.

And just as Pennsylvania will never completely close Delaware loopholes in business tax law, let's not kid ourselves: The ultimate payer of business taxes won't be a corporation, but all of us. Taxes get passed down the line to consumers in the form of higher prices.

Still, tax fairness requires that corporations share in the cost of government services. So let's narrow, at least, the Delaware loophole with a comprehensive approach to business tax reform that pairs combined reporting with a corporate tax rate of around 6.5 to 7 percent.

For Pennsylvanians, Delaware is a great place to visit. Let's not send our businesses to live there.