When Rep. Al Ullman (D-Ore.), chairman of the House Ways and Means Committee, unveiled his sweeping proposal for a value-added tax last summer, it didn't exactly result in a flood-tide of support.

Both liberals and conservatives promptly dismissed the measure. The Carter administration praised it faintly. And Ullman's colleagues on the Ways and Means Committee did their best to forget it.

So far as Washington is concerned, the VAT -- as the measure is known among tax aficionados -- essentially is dead.

But here in Ullman's home district, the plan -- actually a form of national sales tax levied at each stage of the manufacturing and distribution process -- is churning up a reaction that Ullman neither expected nor wants: It's providing grist for the campaign of his Republican opponent.

Dennis A. Smith, 42, a well-to-do airline pilot-turned-publisher, is using the VAT -- and Oregonians' legendary hostitly toward sales taxes -- to challenge the 23-year House veteran for the Second District congressional seat.

What's more, although Smith himself admits he's got a long way to go, political pros acknowledge he's emerged as the first credible opponent Ullman has faced since the early 1960s.

"We're taking him seriously," an Ullman staffer concedes.

It's not hard to see why campaigning against a sales tax might be effective in Oregon. Voters here haven't exactly hidden their distaste for it. Last time a sales tax measure got to the ballot, it was defeated by 504,274 to 65,077.

Indeed, Ullman's merely mentioning such a plan nationally has driven local Democratic leaders up the wall. "The more he pushes it, the more votes he loses," frets a local party activist. "All of us have asked him -- why?"

But the sales-tax issue itself isn't the only way Smith is using the VAT proposal to rap Ullman in the campaign:

He also contends that proposing the VAT shows that while Ullman may have acquired national standing, he's actually a "high-tax man" who has "lost touch" with his district over the years.

And he says Ullman is so wrapped up with national policymaking he's become an absentee congressman.

"Al Ullman is a very nice guy, and he's put a new post office in nearly every city in the district," Smith tells audiences throughout the Second District's sprawling, near-statewide campaign circuit.

"But he only came back here four times in 1979, and he pays more property taxes in Virginia than he does in Oregon -- he doesn't even own a home here anymore.

"Oregon needs something more than a Virginian representing us," Smith asserts. "We need a man who knows how people back here think."

Smith contends the VAT eventually would result in increased taxes for business and individuals -- with higher spending levels to boot.

He also criticizes the tax as "regressive" -- likely to hit the poor harder than high-income taxpayers. And he echoes compaints that the VAT would be inflationary because it would be included as part of a product's sales price.

Ullman counters that the VAT never was intended as an extra tax burden, but rather as a substitute tax designed to enable Congress to reduce federal income and Social Security taxes. He denies it would finance higher spending levels.

The chairman also dismisses Smith's charges that he's "lost touch" with the district.

Ullman's office records in Washington show he was back in the district eight times last year rather than four as Smith alleges.

And the chairman says he owned rental property in Salem that was destroyed in a fire last year. "We're looking around," he asserts.

But it's also clear that Ullman has some fence-mending to do here. Spot checks around the state show substantial resentment, even among Ullman backers, that the chairman may not be paying enough attention to the home folks.

One key state Democratic leader who tried to warn the Ways and Means chairman about the problem during a visit to Washington recently complains he was shunted aside by staffers "who didn't seem to know who I was."

And local Democrats grip they often don't know Ullman has been in their communities until they read about it in the newspapers -- after he's gone back to Washington. "And then he's spoken to the Jaycees, not to us," one says.

The emergence of a credible opponent is something new for Ullman. During most of his 23 years in Congress, his challengers have been fringe candidates. In each of his last three races, he won 70 percent of the vote.

But politicos in every corner of the state agree that Smith, a clean-cut former Air Force fighter pilot, poses a new problem for the previously untroubled Ways and Means Committee chairman.

To begin with, unlike most of Ullman's earlier opponents, Smith isn't entirely an unknown. His father, Elmo E. Smith, served a brief stint as state senator and governor. As a youth, Smith accompanied him on statewide campaigns.

And Smith himself has been campaigning almost full time since last November -- a year before the scheduled election -- a decided disadvantage for the incumbent in a district that is a five-hour flight from Washington.

Unmistakably the conservative Republican, Smith on the surface seems hardly discernible from young GOP challengers in a dozen other districts. His suits are square-cut. His hero is former Treasury secretary William E. Smith.

Indeed, Smith himself concedes he's probably more conservative than most Republicans who win office in Oregon. (His wife, Kathleen, is a member of the John Birch Society, and his direct mail is handled by a gun-lobby supporter.)

Still, Smith's new incursions have sparked some visible backpeddling on Ullman's part. The Ways and Means chairman already has announced plans to revamp his VAT proposal to meet both liberal and conservative objections. And recently he's begun backing away from the sales-tax plan entirely. "I'm not particularly hung up on VAT," Ullman asserted in a recent interview, a theme Oregonians say he's been hitting here at home as well.

Ullman also has visibly stepped up his trips back to the district, flying back several times in the past six weeks alone. Aides say this year he will pour some $250,000 into the race -- up from about $90,000 in earlier campaigns.

By any standard, Smith still has his difficulties. For all his political home ties, name recognition is a problem. And the district, which sprawls over three-quarters of Oregon, is difficult to reach -- either by TV or by car.

Moreover, even with his acknowledged credibility as a candidate, Smith hasn't been able to tap the big Portland contributors whose support is essential for a statewide campaign. So far he's raised only $60,000.

As of now, Oregon's political oddsmakers are giving Smith only a 20 percent to 30 percent chance of actually beating Ullman in November (neither has serious primary opposition). Most view his bid as a start on a second attempt in 1982.)

Still, political pros -- mindful of 1968, when current Sen. Bob Packwood (R-Ore.) toppled incumbent Wayne F. Morse -- are careful about ruling out an upset. In Oregon, campaigns involving sales taxes can't be written off.