Dale City developer Hylton Enterprises Inc., using a Virginia law aimed at preserving farms and open space, has cut its real estate taxes by about $200,000 this year on land it fully intends to develop.

A Hylton official described the law as "ludicrous" and said the company's action was designed in part to shake up the Prince William County supervisors and lead to revision of the law.

Virginia's land use legislation was passed by the General Assembly in 1971 to become effective with county option in 1973. It was widely hailed as an effective method of protecting rural land from the pressures of development.

The law allowed land used for farming, forest, horticulture and open space to be taxed on the basis of its use rather than on market values that might be pushed up by nearby development.

Its supporters argue that it has protected farmers, but say it also has proved to be of valuable service to the very forces it was designed to thwart.

On Oct. 31, 1977, Hylton filed applications to have 26 parcels totaling 2,685 acres assessed under the county's land use program rather than on fair market value.

Although the firm intends to develop the land, it qualified to have the land's assessment cut from $4,147,000 to $181,000, with a resulting tax reduction from about $227,000 under current rates to about $10,000.

Acreage in Prince William County's land use program increased from 42,644 worth $13.8 million in 1974 to 57,463 worth $32.9 million after a 1975 reassessment.

In 1976 there were 61,358 acres worth $33.8 million, and in 1977 the acreage had risen to 66,926 worth $35.8 million at market value. The cost in taxes to the county was $1.4 million.

With the addition of the Hylton land, the 1978 real market value will be about $40 million. About 17 percent of the total will be owned by four groups: Hylton; B&H Investments of Manassas, with about $1 million, and J. V. Elrod of Arlington and the California-based Hahn Co.

An agreement on the Elrod-Hahn property, 300 acres at the Interstate 95-Dale City interchange, apparently spurred the Hylton action. Hylton officials said yesterday they would reply only to written questions, but Hylton vice president Robert C. Wills had spoken at length last week to the Potomac News.

Elrod won an out-of-court settlement with the county to have the land included in the land use program, then sold a portion to Hahn for the development of a major regional shopping center.

Wills was quoted as saying last week that "I really don't think land use should be applicable to use, but it shouldn't apply to any commercial property . . . It's the principle of the thing." "Hylton has always paid taxes on his land, as zoned," said Wills, who added that the corporation formed by C. D. Hylton-paid more than $1 million in land taxes each year.

For the Elrod tract owners to apply for land use and then sell to a shopping center is "just crazy . . . If this board is going to let the people of this county suffer so long as a company in California can benefit from it, it's crazy," Willis was quoted as saying.

". . . if the board (of supervisors) wants to sit back and raise taxes for everybody and continue to (harm) the people, then by God we pay more taxes than anyone in this county," he continued.

Wills later wrote a letter to the board apologizing for the strong language he used and the corporation directed its people not to discuss the issue further.

Loudoun County, which also adopted the land use provision, had 169,000 acres enrolled in 1977 at a tax loss of $1.98 million.

Among participants in Loudoun is the IBM Corp., which has put about 400 acres under the forestry section, reducing the assessment from $1.4 million to $80,000.

The law does contain a five-year rollback provision that requires an owner who develops enrolled land to pay back taxes with a 6 percent interest rate to make up the difference between assessment levels.

If an owner holds the land more than six years before developing it, he keeps the savings for the extra years. He also has the advantage of what amounts to a low-interest, 6 percent loan while in the program.

Prince William County Assessor Arthur Shoemake said the Virginia Association of Assessors, among other organizations, had sought to plug loopholes in the law for several years.

One problem is that the law allows land to be rezoned for higher desnity use - indicating plans for development - and remain under the program.

The law also would allow someone to sell off one-acre lots, keeping the rest in the lower tax bracket.

And the forestry section is so loosely defined that almost any land can qualify. An acre can qualify as "forest" if it has 22 trees at least seven inches in diameter.

State Del. Raymond Vicker (D-Fairfax), who has tried for several years to get the law strengthened, said yesterday, "These examples are a case study of why we need to tighten the law."

"Basically, the people who block that are the large landowners in rural areas whose legislators don't see the problems of developing counties," he said.

Vickery, who supports the intent of the law, said "This can produce a backlash - they told us it was for conservation and look where it's going. The taxpayers will say 'Get rid of it all.' That's the problem when you produce a program which is not tight enough."