The late Howard Hughes was reputedly a genius at avoiding taxes, but the enigmatic financier somehow neglected to prepare a will before he died about five years ago. This peculiar oversight has produced an intergovernmental legal battle which, ironically, may result in taxes totaling as much as 101 percent of the worldly riches that Hughes left behind.

At issue is what state the peripatetic Hughes considered as his formal domicile at the time he died. The state that successfully claims Hughes as its own will be able to tax his rich estate, whose exact value also is being contested.

California and Texas are locked in court battle for the right to tax the estate, while the federal government has taken an unusually active role in claiming a piece of the Hughes legacy for Uncle Sam.

Both the Justice Department's tax division and the estate itself are anxious to have Nevada named as Hughes' domicile. The reason: Nevada has no estate taxes.

If the courts decide that Hughes was domiciled in Nevada at the time of death, then Hughes' 21 heirs would not have to pay any state taxes and the federal government would not have to provide the mandated 16 percent credit to the estate for paying state taxes.

"I think it's unseemly for the Feds to decide that Hughes was domiciled in Nevada just because it can collect more taxes," says Rick Harrison, an Austin attorney who is representing the State of Texas.

A Texas state court in 1977 found that Hughes was domiciled in that state at the time of death, but the case has now moved to the federal courts.

The federal case, like the state one before it, will be a virtual biography of the fascinating financier.

Because many of the witnesses are old and may not be around when a trial is finally held, some of their depositions have been taken on videotape.

Among the more than 50 persons interviewed by lawyers were Noah Dietrich, 91, the former Hughes aide who clashed with his boss in the late years; the two doctors who accompanied Hughes on the last plane trip when he died on his way from Mexico to a Houston hospital; Macy Todd, a butler for Hughes in the 1930s; and John Dunlop who was a valet of Hughes' father in the 1920s and later worked for Howard Hughes.

About 95 percent of the estate is composed of the assets of Summa Corp, the privately controlled Las Vegas-based management company founded by Hughes.

Summa owns large and valuable parcels of raw land in the Las Vegas and Los Angeles areas, hotels and gambling casinos, and the Hughes Helicoptor division of Summa.

While Hughes was living on the top floor of the Desert Inn Hotel in Las Vegas near the end of his life, he acquired some of The Strip's most celebrated properties, which now are part of Summa. These include the Frontier and Castaways hotels and casinos, as well as the Desert Inn Hotel and Country Club. Summa's Sands Hotel and Casino is up for sale. William R. Lummis, 51, a cousin of the late financier, is running Summa these days. A successful Houston attorney until he was named chairman of Summa in 1976, Lummis gets high grades from all sides for streamlining the once-troubled company.

For example, while Hughes would think nothing of financing an ocean-mining business that was a front for the Central Intelligence Agency or buying a Las Vegas television station so he could watch old movies all night, he let his hotel-casinos deteriorate so badly that in 1976 health authorities closed down some rooms of the famous Desert Inn as unfit for habitation.

Indeed, Business Week estimated that Summa may be worth about $2 billion now, mainly because of its valuable real estate holdings. Clay Lilienstern, a Houston attorney representing the Hughes estate, says that Summa is setting aside funds so it can survive the tax bite. "There's a lot of tax planning going on with an eye to paying legitimate taxes," he says.

The valuations of the estate at the time of Hughes' death vary according to the interests of the estimator. For example, Lummis, who is administrator of the estate, pegs its value for tax purposes at just $166,500, while a California inheritance-tax referee said it was worth about $1.1 billion. The Internal Revenue Service, meanwhile, put the estate at $465 million, while Texas hasn't given it a value.

According to Martin R. Glick, a San Francisco attorney representing California, that state has a legitimate claim against the estate because Hughes lived in Los Angeles for 40 years and, when he sold his house there, he never bought another.

But Harrison, the attorney representing Texas, notes that Hughes was born in that state and says the law provides that a person retains his original domicile until there is evidence of a change. In the trial in a Texas state court, "The evidence showed that Hughes was such an itinerant that he didn't plan to settle anywhere else," Harrison says.

From the figures, it's clear why the estate and the federal government oppose the domicile claims of both Texas and California.

The federal inheritance tax is 77 percent, but the IRS allows a 16 percent credit for state taxes.

So if the court decides that Hughes' domicile was Texas, the estate will owe 16 percent state tax plus 61 percent federal tax (77 percent less 16 percent credit), or a total of 77 percent. If California is the domicile, the estate must pay a 24 percent state tax plus 61 percent federal tax for a total tax bite of 85 percent of the value of the estate.

However, if Nevada is judged to be Hughes' domicile, there is no state tax and the IRS collects the full 77 percent federal tax and it doesn't have to pay any credit because there is no state tax.

There is a legal precedent for each entity being permitted to level its own tax against the estate. If this should happen, Texas would get 16 percent, California 24 percent and the IRS 61 percent, for a grand total of 101 percent of the total estate.

But on Oct. 27, the Fifth Circuit Court of Appeals ruled that the U.S. District Court in Austin should hear the case and should decide on a single domicile for Hughes.