Employee benefits are routinely taxed differently. Health insurance, 401ks, some meals, etc.

Most likely, it'd be considered a "fringe benefit" and the employee would still have W2 / income taxes and withholdings on it. How municipalities would tax the property value depends entirely on how they choose to tax on-site housing (as it is technically both commercial and residential space).

Maintenance on the buildings would likely be partially deductible as operating expenses, no different than any other building operated by a landlord or business.

The illegal aspect only pertains to doing something like this and not paying relevant taxes. Companies have been providing their employees housing for hundreds of years. Trump Org was perfectly free to provide employees apartments, provided appropriate tax filings and payments were made.