2301 - State Owned Housing (SOH) Policy


State Owned Housing

Audience List

  • Accounting Officers
  • Budget Officers
  • Department Directors
  • Labor Relations Officers
  • Personnel Officers
  • SOH Coordinators


It is the policy of the “California Department of Human Resources (CalHR)” to set rental rates, and increase annual rental rates to Fair Market Value (FMV) (1) of SOH in accordance with the Memorandum of Understanding (MOU) between the state and its employee unions. Non-represented employees are covered by state regulations. In applying rental rates there is a tax liability which surfaces if the employees are paying rent below FMV.


Government Code (GC) section 19822(a), amended in 2006, mandates department compliance with all rules associated with the lodging, maintenance, and other services associated with SOH furnished by the state and reinforces the requirement that owner departments adhere to administrative requirements.


State Policy

Each state agency that provides housing accommodations for employees has been delegated the authority and responsibility to apply rental rates, make adjustments to the rates, maintain housing in good condition, and dispose of housing that cannot be economically maintained.

The process for adjusting rental rates for represented employees is dictated by the negotiated MOU for each bargaining unit. It is the policy of the department to adhere to the requirements of state and federal reporting of Fringe Benefits (2) and Employee Business Expenses (FB/EBE) resulting in taxable and reportable income.


Primary Employer Roles

In accordance with tax law, the “employer” is responsible for multiple activities. The state has three entities that collectively constitute the “employer.” Under the civil service system, this includes the system-wide employer, reporting and withholding agent employer, and the local employer.

System-wide Employer

CalHR is the system-wide employer that has program responsibility and performs the following primary functions:

  • determine/provide system-wide pay and benefits programs which civil service employees may receive (business mileage, per diem, etc.);
  • provide resource and technical assistance to ensure compliance with tax requirements, benefits programs, civil service needs, system-wide conditions, rules, and administration requirements for pay and benefits programs (including tax consequences based on options afforded under federal and state requirements);
  • advise downstream clients (agencies, employees, withholding, and reporting agent, etc.) of pay and benefits/conditions/administrative requirements;
  • collect data and monitor pay and benefit programs to ensure compliance;
  • determine the fair and reasonable value of maintenance, living quarters, housing and utilities on all SOH properties;
  • ensure that rental and utilities rates are raised to FMV; and
  • set penalties, fines, or charge an administrative service fee for failure to comply with timely reporting or for noncompliance with tax requirements.

In addition to the above, should a tax audit for FB/EBE occur, CalHR is required to assist in the audit, implement corrective measures, and address resolution of penalties, fines, etc.

Reporting and Withholding Agent Employer

The State Controller’s Office (SCO) is the state’s reporting and withholding agent for system-wide employers whose employees are paid via the Uniform State Payroll System. The office performs the following seven primary functions:

  • monitors federal and state tax activities and notifies clients (state departments/agencies) regarding changes affecting pay and benefit programs;
  • advocates tax reform at both the federal and state levels to reduce employer burdens and related tax liabilities (i.e., Student Exclusion Rule);
  • implements reporting and withholding requirements/processes based on system-wide and local employer pay and benefit programs/mandatory tax changes;
  • calculates and withholds the related tax and pay employment taxes to federal/state tax authorities;
  • collects and reports employment tax and wage information to federal/state tax authorities (quarterly, annually);
  • mitigates employment tax fines, penalties and assessments on behalf of the system-wide and local employers; and
  • processes and pays tax assessments to appropriate tax authorities from funding received from system-wide/local employers and reports corresponding wage information.

Local Employer

The local employer (agencies/departments) likewise performs several primary functions, including:

  • adheres to system-wide employer pay and benefit programs, administrative requirements, reporting requirements, and processes required by CalHR and SCO;
  • reports timely, accurately and comprehensively;
  • advises downstream clients (administrative staff, employees, independent contractor, etc.) of changes to pay and benefits programs, annual rent and utility increases, including tax related impacts;
  • performs comparable functions as the system-wide employer, when delegated by CalHR, to provide local benefits; performs program oversight, including the payment of fines, penalties, etc. via the reporting agent to tax authorities;
  • adheres to federal and state 1099 MISC using the agency/department Employer Identification Number (EIN);
  • develops written procedures to ensure consistent and correct reporting of taxable fringe benefits and taxable employee business expense reimbursements;
  • reports real property holdings to the Department of General Services (DGS) and SCO;
  • notifies the local county assessor’s office regarding reportable possessory interest tax (3);
  • raises the rent and utility rates annually in accordance with the provisions in the MOUs; and
  • maintains housing in good condition.

Employee Housing

The state provides SOH/lodging as the primary residence for use by its employees and their dependents. In accordance with Government Code section 19822 (a) SOH is for state employees. Housing units include: houses, apartments, dormitories, mobile homes, trailers, mobile home pads, trailer spaces, etc. Employees renting SOH occupy them at the discretion of the local employer. Acceptable reasons include: recruitment, security, safety, remoteness of the location, or where housing in the local community is unavailable.

If the department/agency decides to vacate a SOH unit currently occupied by a state employee it shall give the lessee the minimum notice according to the provisions of the MOUs and/or department policies. If the contract contains no termination language, the state can terminate a periodic tenancy (month-to-month) by giving the lessee proper advance written notice. If the lessee has rented the unit for a year or more, the state must give him/her 60 days’ advance written notice to terminate tenancy.

Fringe Benefits

Employer provided housing benefits are generally reportable/taxable income. The civil service system includes multiple entities ranging from policy makers to supervisors who because they often lack a working knowledge of basic tax rules and regulations, fragment the implementation of the state and federal tax compliance. For example: a fringe benefit is a form of pay for the performance of services provided by the employer to an employee. It should be noted that even if the provisions of a state statue/departmental procedure or union contract state lodging is not taxable, the facts and circumstances including the requirements of IRS Sec.119 control the federal taxability.

The IRS Regulations section 1.61-21(b) provides guidance in the definition of FMV. In addition, such factors as the property extreme isolation or seasonal inaccessibility, the close proximity to disturbing noises or offensive odors, lack of privacy, age, overall size and physical conditions etc, may impact the value of the property and rental charge. The IRS codes have tax implications for employees residing in SOH paying less than FMV in rent/utilities. The difference between FMV of the employer-provided housing/lodging and the monthly rent paid by the employee is included in the employee’s gross income and is reportable taxable income and must be reported on Form W-2, Wage and Tax Statement, unless the law specifically excludes it. Excluded benefits are not subject to federal income tax withholding, and in most cases, they are not subject to social security, medicare, or federal unemployment tax and are not reported on Form W-2.

Non-employees e.g., an independent contractor, partner, or director receiving a fringe benefit are not subject to employment taxes. Instead, the department is required to report the benefit for an independent contractor to the IRS on Form 1099-MISC or if a partner on Schedule K-(Form 1065).


Departments can exclude the value of lodging that is furnished to an employee as a Working Condition Fringe Benefit (WCFB) from the employee’s gross income if it meets all three of the following tests:

  • The lodging is provided on the business premises of the employer.

The business premises of the employer means the place where the employee performs a significant portion of his/her duties.

General Rule: To meet this requirement, the housing must be on the premises, not near the premises.

  • The lodging is provided for the convenience of the employer.

The convenience of the employer means that the employer has a substantial non-compensatory (non-pay) business reason to provide housing to the employee. The determination is made on a case-by-case basis.

  • The employee is required to accept such lodging as a condition of employment.

The department requires the employee to live on the premises in order to perform the duties of the job.

According to the IRS, the fact that an employer requires an employee to live on the premises does not constitute a WCFB. The employee must do so because the on-site housing is indispensable to the proper discharge of assigned duties. The department must demonstrate and document that the employee is required to be available for duty at all times or that the employee could not perform the services required of him/her unless s/he is furnished with on grounds housing/lodging.

Fair Market Validation

The FMV is determined as the average of two appraisals of comparable properties being rented in the market area. The determination of FMV shall be based on the condition of the property, not including the damage that has not been fully repaired. In accordance with California Code of Regulations and the IRS, the FMV must be determined annually. IRS Section 1.61-21 does not require a new appraisal be conducted every year, but that the appraisal is reviewed bi-annually to insure validity.

Vacated SOH units and utility rates are to be raised to FMV. Where employees are currently paying rent, the state may raise such rates up to twenty-five percent (25%) each year. Where employees are currently paying utility rates to the state, the state may raise such rates up to eight percent (8%) each year. It should be noted that the difference between the FMV of employer-provided housing/lodging and the monthly rent and utilities paid by the employee is included in the employee’s gross income and considered reportable taxable income. Some MOUs allow the employee to cash out accrued Compensating Time Off (CTO) hours up to a net amount equivalent to that month’s rent and utility charges. The FMV, less the amount paid by employee ($0), is reportable income. Housing rented at FMV has no tax implications.

Taxable Possessory Interest

A taxable possessory interest may exist whenever there is a private, beneficial use of publically owned, non-taxable real property, i.e., employees leasing/renting state owned facilities for their own beneficial use. Government entities do not have to pay property tax and thus the rent charged does not include an increment to recover such taxes. The possessory interest tax is used to help the lease’s fair-share for services and benefits (fire and police protection, schools, and local government). When having housing appraised it is important that the appraiser only value those rights held by the private owner.

The lien holder for possessory interest is the employee/independent contractor leasing/renting the property on January 1. Even if the individual vacates the property any time after January 1 (before the next calendar tax year), he/she is responsible for the preceding 12 months. There is no exemption from reporting possessory interest to the respective counties. Departments are responsible for notifying the local assessor’s office using the BOE-502-P Possessory Interests Annual Usage Report by the February 15 due date with the name and address of the employee for the assessment.

Departments are not responsible for the collection; only for submission of the form. The lease agreement should inform residents of his/her responsibility for payment of the possessory interest tax of the residence regardless of when the residence is vacated.

Annual Housing Surveys

To ensure compliance with applicable federal and state regulations, CalHR requires departments to complete an annual SOH survey that provides rental information for properties. The survey form consists of 34 columns (A-AH) and for audit purposes is the reporting of employee/independent consultant taxable benefits and taxable business expense reimbursements including identification of any properties that have been improved or destroyed.

Real Property and Major Structures

Departments are required to furnish DGS, Real Estate Services Division (RESD), with a record of each parcel of real property that it possesses and to annually update its real property and major structures by July 1 of each fiscal year. This information should be recorded on the Structure Data Entry Form, RESD Form 1040. Additionally, DGS is responsible for maintaining an accurate inventory of all real property held by the state.

In addition to reporting to DGS, departments must report to SCO in a Statement of Changes in General Fixed Assets, i.e., all additions and deductions to real property funded by government funds. SCO includes this information in the state’s financial statements.

Rent/Lease Agreement

Departments will furnish each employee renting SOH with a written rental agreement renewed annually with the following terms and conditions, including:

  • occupancy date
  • termination clause
  • abandonment clause, i.e., vacate or personal property left on the premises
  • monthly rent due
  • method of payment
  • security deposit and method of return
  • tenant responsibility for payment of utilities to utility company when unit is metered to the home
  • limited use and occupancy, i.e., private residence for lessee and family no display of business signs regarding home based businesses without written consent by department
  • written permission for guests visiting more than two weeks
  • date of FMV appraisal and notice of annual adjustment (rent and utility)
  • FMV and reportable FB/EBE to SCO (if not meeting IRS criteria)
  • verification and documentation if a WCFB (placed in the employees personnel record)
  • date of annual rent and utility increase
  • notification to indemnify and hold the state harmless from and against any claims, damages, or other injury suffered by lessee/dependents as a result of residing on premises
  • proof of homeowner and liability insurance; waterbed; pets and domesticated farm animals renewable each year for $300,000 for each person/$500,000 for each occurrence and/$100,000 property damage or a combined single limit policy of not less than $500,000 naming the state, its officer, agents and employees as additional insured
  • annual possessory interest tax and due date
  • allow access (with proper notice generally not less than 24 hour) of the state representative when necessary to inspect the premises for vermin, maintenance and repair or replacement of furnishing/equipment, or testing of fire equipment and wiring as needed
  • requirement for lessee to promptly report needed repair or correction for any damage
  • annual inventory of household furnishings
  • proper maintenance of landscaped areas, sprinklers, drainage, walkways, parking lot lighting, and debris
  • prohibition regarding alterations, repairing, remolding, or painting without written permission by the department
  • no subletting of property without prior written consent by the department
  • quiet possession (peaceful no loud noise or disturbances)
  • storage of combustibles/tools/broken down cars or large equipment
  • vehicles registered and in operating condition
  • personal payment for installation of telephone, satellite , etc
  • responsible for any damage to the housing unit
  • payment of any attorney fees resulting in any action brought by the department for the breach of any of the terms or conditions contained in the lease
  • optional insurance coverage

Some SOH are located within the floodplain of creeks, streams, and rivers. Floodplains are determined by the Federal Emergency Management Agency (FEMA) based on the likelihood of flooding. Employees renting/leasing SOH should be informed that in addition to purchasing homeowners/renters insurance he/she may want to consider flood insurance or earthquake insurance and should speak with an insurance agent for specifics.


CalHR has the overall responsibility for administering the SOH Program. The following SOH departmental responsibilities are required in order to maintain their compliance with reporting guidelines, timeframes, and records retention rules.

Reporting Requirements and Applicable Timelines

Housing values where there is reportable income (actual rent/utilities/County Possessory Interest Tax and the FMV taxable benefits) must be reported to SCO via form STD. 676V by the 10th of each month using the Non-USPS Adjustment Request Values form, STD. 676V “Fringe Benefit/Employee Business Expense.” Failure to report timely is a violation of the federal law requirement and subject departments to civil and criminal actions.

Annually - February 15: Taxable Possessory Interests

Departments are required to provide the assessor of the county in which the property is located information for the current assessment year on all private uses of publicly-owned property. Revenue and Taxation Code section 61 requires departments to annually submit a detailed report to the county assessor's office by February 15. This information should be recorded on BOE Form 502-P unless otherwise directed by the local county assessor. Each agency is required to provide copies or a facsimile of these reports to the CalHR, Benefits Division, SOH Coordinator, 1515 S Street, North Building, Suite 500, Sacramento, CA 95811-7243 by March 15. Reports may be submitted before the specified date. If the due date falls on Saturday, Sunday, or a legal holiday, the report may be submitted on the next business day.

July 1 - Real Property and Major Structures

Departments are required to submit an update of their real property and major structures data to DGS/ RES reflecting each parcel (including any changes). This information should be recorded on the Structure/Site Improvement Data Entry Form RESD Form 1040.

 In addition to the report being submitted to DGS and RES, departments must provide a copy to CalHR, Benefits Division, SOH Coordinator when the property includes employee-housing units.

September - Rental Fair Market Value Appraisals

In addition to the annual rent survey, departments are required to conduct an appraisal (once every 5 years) by contracting with an authorized certified appraiser. The written report shall include a complete legal description of the property, i.e., plot maps, photographs, charts, street address, relevant market data, Rental Rate Market Analysis (RRMA), comparable data, supporting analysis of the market conditions, and signed certification. Reports are due to CalHR, Benefits Division, SOH Coordinator, ten (10) days after receipt of the completed appraisal. Departments are required to submit an annual appraisal or desk review update each calendar year.

October 1 - November 30: SOH Surveys

Departments will provide CalHR, Benefits Division, SOH Coordinator with annual updates on rental and utility rate increases, i.e., department and facility, county code, property/residence type, residence address, number of bedrooms, bathrooms, square footage, Collective Bargaining Identification/Non Representative (CBID/NR), classification, occupancy date, monthly RRMA, date of rent and utility adjustment, new rental rate, payroll deduction, and date of RRMA appraisal, etc.

In addition, all state-provided household furnishings, i.e., items contained within the rental property, including furniture, window coverings, appliances, wall coverings/hangings, carpeting, etc., shall be inventoried and inspected by departments and their condition documented.

Reports may be submitted before the specified date. If the due date falls on Saturday, Sunday, or a legal holiday, the report may be submitted on the next business day.

Ongoing - SOH Special Requests/Reports

Departments will provide CalHR, Benefits Division, SOH Coordinator with copies of any responses, plan of correction updates, or reports requested by the Governor's Office, Bureau of State Audits or Legislators within ten (10) days after response is completed.

Records To Be Maintained

According to the Franchise Tax Board Manual (Section 10000), “the Statute of Limitation (SOL) is a time limit imposed by law on the right of both the state and taxpayer to increase or decrease the taxpayer’s self-assessed taxes.” According to DGS, Procurement Division, “Records have legal value if they contain evidence of legally enforceable right of obligations of the state.” This would include SOH housing records (housing surveys, FMV appraisals, rental agreements, documentation substantiating reduced rental/utility rates) because they are viewed as a fiscal document representing a contractual agreement between the state and employees renting state owned properties.

These include:

  • Taxpayer File - Lien date is six years from the lien date for the taxes for which that information was obtained, i.e., April 2009 through April 2015.
  • SOH Survey Reports - Retained six years after the annual update, i.e., May 2009 through May 2015.
  • Rental Agreements and FB/EBE Documentation – Retained six years after the lien date.
  • Possessory Interest Annual Usage Report – Retained six years after the lien date (January 1).


  1.  Fair Market Value (FMV)- IRS Regulation Section 1.61-21 (b) defines FMV as the amount which the property would rent for in an open market between lessor and lessee.
  2.  Fringe Benefit- The FMV less the actual rent paid by the employee equals the taxable and reportable fringe benefit.
  3.  Possessory Interest Tax- Under the California Constitution, state owned property is exempt from real estate taxes except when that property is used either by employees or private business for private use. Because rent charged by government entities does not include an increment to recover taxes, private use by an individual or private business can be taxed by the county assessor as possessory interest. [Revenue and Taxation Code Section 107]




Web Pages

Authorized By

Benefits Division
Benefits Division Inquiries, Benefits Division

Contact Person

State Owned Housing Program
Phone: 916-322-0300
Email: Stateownedhousing@calhr.ca.gov

Superseded Policies

Not Applicable.


View History

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Table of Contents

1000 - Equal Employment Opportunity

1100 - Selection

1200 - Appointments

1300 - Exempt Employees

1400 - Benefits and Insurance

1500 - Work Schedules

1600 - Third Party Pre-Tax Parking

1700 - Compensation

1800 - Savings Plus

1900 - Bona Fide Associations

2000 - Collective Bargaining

2100 - Leave

2200 - Travel/Relocation

2300 - State Owned Housing

2400 - Employee Recognition

2600 - Layoffs

2700 - Retirement

2800 - Training

2900 - Workforce Planning

3000 - Examination and Hiring

3100 - Drug-Free Workplace

3200 - Medical Screening

3300 - Apprenticeships

3400 - Temporary Assignment

3500 - Classification Plan