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Legal Memorandum: Taxability of Damages or Wage Losses

Issue: Whether New York or New Jersey law controls the taxability of damages or wage losses.

Area of Law: Litigation & Procedure, Tax Law
Keywords: Damages or wage losses; Taxability; Governmental interest test
Jurisdiction: New Jersey, New York
Cited Cases: 589 N.Y.S.2d 502; 520 N.Y.S.2d 477; 143 S.W.3d 14; 171 N.J. 86; 286 A.D.2d 5; 612 N.E.2d 277; 733 A.2d 1133; 506 N.Y.S.2d 90; 122 A.D.2d 939; 595 N.Y.S.2d 919; 792 A.2d 1208; 160 N.J. 108; 605 A.2d 773
Cited Statutes: None
Date: 09/01/2005

There are no cases on point that address the issue of choice of law regarding the taxability of damages or wage losses.  Instead, courts have confronted the choice of law issue in the overall context of damages.  Generally, courts have held that the choice of law applies to each issue in a pending case.  The issue of standard of care may be controlled by the law of one state and the issue of damages controlled by the law of another.  As some of the following cases note, a state does have an interest in the amount of damages in order to keep insurance rates low or preventing plaintiffs from being overly compensated. 

Fu v. Fu, 160 N.J. 108, 733 A.2d 1133 (S.Ct. 1999) (New Jersey rejects traditional rule of lex loci delicti and applies “governmental interest” test that seeks to apply the law of the state with the greatest interest in governing the specific issue).  NOTE: This case states that courts are required to consider the degree to which deterrence and compensation would be furthered by the application of a state’s local law.  When the tort rule primarily serves as a deterrent, the state where the injury occurred will most likely have the dominant interest.  When the tort rule is designed to compensate a victim, the state where the injury occurred, which is often the state where the plaintiff resides, may have the greater interest. [Emphasis added.]

O’Connor v. Busch […]

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