State and local officials say many Virginians are avoiding paying personal property taxes, sales tax and other fees through the illegal use of dealer tags on automobiles.

"There's definitely a financial incentive for using the plates illegally," state Department of Motor Vehicles investigator Art Hansgen told the Daily Press of Newport News. "You don't pay the state's 3 percent sales tax on the retail value of the vehicle. You avoid paying a titling fee. You don't pay registration, and you don't pay property tax."

The newspaper calculated that the purchaser of a new car can save $1,092 in taxes and fees annually by using a dealer tag.

According to Department of Motor Vehicles, 58,300 dealer tags have been issued to the state's 5,900 car dealers.

A department spokeswoman said the tags are issued for cars used to give customers test drives. A dealership's owners, officers and full-time employees also are allowed to use the tags, as are part-time employees who are moving cars at the dealer's instruction.

Dealer tags are not supposed to be used by family members of the dealership's owners or employees, according to state officials.

Some officials said they suspect that many used-car dealerships that double as wrecking yards, car repair shops and other businesses are actually set up for the owner and his friends to avoid paying the taxes.

The maximum penalty for misuse of a dealer tag is 12 months in jail and a $1,000 fine; according to department records, only two people were prosecuted for misuse of tags last year.

"It's probably the most abused law that's written in the motor vehicle section of the state code," said Sam Barfield, Norfolk commissioner of revenue. Barfield said tax collectors from across the state have been complaining to the state about the proliferation of dealer tags.

"The law says we cannot tax that vehicle if it has a dealer plate. It is supposed to be in the inventory for sale. We have no problem with that. But what is happening is the wife or a friend is taking the vehicle and using it for their own personal use," he said.

The Department of Motor Vehicles has 46 investigators charged with enforcing the motor vehicle section of the state code. In addition to checking dealer tags, they are responsible for investigating auto theft rings and consumer complaints, monitoring collection of fuel taxes and other duties.

"We don't ride around looking for misuse of dealer tags," said Donald E. Williams, commissioner of the department. Williams that said when complaints are made about the use of dealer tags, the department will talk with the dealer to gain compliance.

"DMV is interested in compliance; they're not interested in putting people out of business," he said.

Williams said there is no widespread pattern of abuse.

Lt. Gov. Donald S. Beyer Jr., a Volvo dealer in Northern Virginia, said that when he first started in the business 16 years ago it was standard for spouses and children to have dealer tags. "I don't think people looked at it as getting around the law; it was the law, the normal way of doing business," he said.

"Of course there is abuse," said Don Boling, director of the Virginia Independent Automobile Dealers Association, which represents used car dealers. "Any time the government grants a privilege, there are always those who seek to abuse it."

The newspaper found that among those driving vehicles with dealer tags were a building contractor and a restaurant owner.

The contractor also owned an auto dealership, but it had no telephone listing or business license. The restaurateur was not listed as an officer of the dealership issuing the tags -- an oversight, according to the dealership's owner.