Most sources say Scarfo was banished, but I don't think so. You can spread out easier in New Jersey then in Philadelphia. Also Scarfo was locked up with some members of the Genovese family in the 60s, so more likely someone suggested a change of scenery.

Scarfo having Testa killed was cause members of the family were saying Salvatore was doing his own thing and trying to take over the family. The only threat Testa posed to anyone, was Leonetti, who knew that Salvatore was Nicky's top Capo who was rising through the the ranks fast. Phil hated this and wanted power. He had power since he was Scarfo nephew, but he wanted more. Hence members of Leonetti crew started to say stories, then other members of the family started to tell stories. When Testa called off the wedding, Merlino went to Nick, and that is when Scarfo ordered the hit. Salvatore figured Scarfo would smooth things out, like his father and Nick's uncles did for Scarfo when he called off his own marriage. Who gains the most from Testa death? Leonetti. That move was the beginning of Merlino's downfall and in a couple of years Merlino is knocked down and Leonetti is the Underboss. Think about it.