The 2010 California Mechanical Code, section 307.1 states, in part, that an appliance that generates a glow, spark or flame capable of igniting flammable vapors must be installed with the pilots, burners or heating elements and switches at least 18 inches above the floor when the appliance is installed in a garage. Although you didn't mention where the water heater is located, Iíll assume that since the Fire Marshall wants the water heater elevated that itís in a garage. This would be consistent with current code. Assuming the water heater in question is not located in a garage then it would be reasonable to assume that having it installed directly on the floor would be acceptable. I would recommend contacting the Fire Marshall for an explanation and justification for his/her requirement to raise the water heater. If not located in a garage there may be other hazards nearby that the Fire Marshall believes justify the requirement.
The above quote is from an answer to a previous question and applies to your question as well.
The key words here are ďin a garageĒ (since this is where a possible gasoline leak could produce flammable vapors). If the basement does not present that kind of hazard, we would not expect that the official would require the heater be raised. The California Plumbing code that addresses this issue is 508.14(1). This code section also states that Flammable Vapor Ignition Resistant water heaters do not necessarily have to comply with this section. However, it should be noted that the authority has the right to impose more stringent restrictions than the code. We recommend that you speak to the fire marshal again and ask for an explanation of his/her ruling.