About the same time that Gov. James S. Gilmore III (R) was ballyhooing $1.5 million in grants last month to improve housing in this community of tar-paper shacks, the state's Department of Motor Vehicles was pursuing action that could have halted a community transportation system that carries the area's oldest residents to doctor's appointments and its youngest to Head Start classes.

For more than a quarter of a century, the Eastern Shore Area Agency on Aging/Community Action Agency, the anti-poverty organization for Northampton and Accomack counties where about one-quarter of the 45,000 residents live in poverty, has been given government-issued "local use" license tags and was exempt from paying sales taxes on its fleet of vehicles.

But the DMV had been threatening since spring to withdraw the special status that the nonprofit community agency has had since 1973.

On Friday, within four hours of hearing about the threat, Gilmore stepped in and ordered the DMV to scrap its plan. The governor's quick intervention after a reporter's inquiry illustrates the extent to which Bayview, a hamlet of 114 descendants of slaves, has become a highly visible symbol of the poverty that is widespread on Virginia's Eastern Shore.

Last year, the NAACP drew national attention to Bayview by complaining that its residents were victims of a "modern-day apartheid system." Gilmore vowed to help. Private contributions began to come in from across the country. The amount of state and federal government aid announced so far this year totals $4.55 million.

The DMV threat that had cast a pall over the community agency, said Gilmore's press secretary, Mark A. Miner, was a "bureaucratic hassle."

Last year, the agency's vehicles piled up more than 400,000 miles, carrying 4,223 clients--almost 10 percent of the population--up and down the 75-mile length of the Eastern Shore, a narrow spit of land at the base of the Delmarva Peninsula that is separated from the rest of the state by the Chesapeake Bay.

Sixteen buses and vans, equipped with wheelchair lifts, transport cancer patients to three hospitals across the line in Maryland for chemotherapy and radiation, carry dialysis patients to Shore Memorial Hospital in Nassawadox, make regular visits to four senior centers and venture off on occasional shopping trips--a favorite destination is the Wal-Mart in Pocomoke City, Md., followed by lunch at Bonanza.

Another 18 vehicles, most of them short, 20-passenger yellow school buses, take more than 200 children daily to eight Head Start centers.

Anquiaun Ellis, 5, and his sister, Aundrea, 4, board one of the buses each morning for the short trip from their house in Bayview to the Cheriton Head Start Center, allowing their mother to catch her car pool for the long drive to her job at the Perdue chicken plant 45 miles north of here.

The first hint of trouble with the DMV came in March, according to the community agency's executive director, George V. Podelco, when the manager of a DMV branch refused to sign a note to the Department of Medical Assistance Services certifying that the agency's vehicles were properly licensed to transport ambulatory Medicaid patients.

Instead, the DMV employee informed the agency that it must surrender its license tags and pay back sales tax on all of its vehicles because it was not an official government department.

Podelco, head of the nonprofit agency for 17 years, called the request "absolutely absurd." He said he was unable to find any other similar agency in the state that had received such an order.

Nicholas D. Heil, attorney for the community agency, which receives most of its $2.9 million annual budget from the federal and state governments, estimated that it would cost $50,000 to $75,000 to pay the sales tax on the original cost of the vehicles plus the annual license fees.

"That's money we don't have," Podelco said. He would have to curtail services.

Following a letter from Accomack County administrator R. Keith Bull urging DMV to reconsider and several calls from the governor's office, DMV spokesman Pam Goheen announced Friday afternoon that "we have certification from the county. We just received the letter today, and based on that, we are granting the exemption."

Podelco, who is retiring Aug. 31, called the decision "the nicest retirement gift I could have. It lets me go out in style."

CAPTION: Anquiaun Ellis, 5, left, watches for cars as he and his sister, Aundrea Ellis, 4, get dropped off after a day in Head Start.