AUSTIN (AP) - A loophole that allows some businesses to avoid paying state franchise taxes is unfair and should be done away with, Gov. Rick Perry said Wednesday.

Perry, after speaking to the Texas Association of Business, told reporters that the so-called "Delaware Sub" loophole should be closed.

"I think the Legislature feels, as I do, that that should be closed," he said. "The individuals who are using loopholes to not pay taxes is inappropriate."

Under the practice, companies incorporate on paper in Delaware or in other states where taxes are lower. Then they legally organize into a virtually tax-free partnerships here.

Dell Computer Corp., SBC Communications and some large Texas newspapers are organized this way and avoid state taxes. The businesses say they pay their fair share of taxes, including property taxes.

Comptroller Carole Keeton Strayhorn also has said that she wants to see the loophole closed. Perry and Strayhorn are not advocating taxing all partnerships in Texas.

Perry has previously said he does not want to raise any "new" taxes during the current legislative session.

The franchise tax is the state's main business tax and represented about $2 billion in the last two-year $114 billion budget.

Perry declined to say whether he favors removing any of the current exemptions from the state sales tax.

"I keep reminding people that this legislative session is going to be looking at the spending side," he said. "We will continue to look at the spending side of our equation substantially before we ever bring up the idea of any revenue, if ever, during this session of the legislature."

Among the items exempted from sales tax are manufacturing materials, medicine, food, doctor's office visits, legal services and child care.

Texas is facing a $9.9 billion budget shortfall.

A recent report by the Senate Finance Committee found that the state is losing out on more than twice that amount in tax collections because of assorted exemptions.