I have been working in NJ for 7 years and living in NY. My employer just changed the tax witholding to NJ and no NY taxes are being taken out. What is the law in regard to working out of state and taxes?

Your employer should withhold taxes for the sate where you are employed - in your case that would be NJ. You owe non-rsident taxes to NJ on the income you earn there. Compute your NJ taxes first, then when you complete the NY State tax form you get a credit for taxes paid to other jurisdictions, so you aren't taxed twice by two states on this income. However, be aware that NY's tax rates are generally higher than NJ's, and so you will owe a bit more to NY to make up the difference, if you see what I mean.