Why not? I am willing to offer free shipping to certain neighboring states and not others, why not make it a choice when listing? I ship items that are 5 to 15 pounds or more, and the USPS cost for Ground Advantage is around $10 or so that I can include in the selling price but won't work for me outside of those certain zones.
I think this will encourage neighboring buyers but will not discourage other buyers.
Shipping Zones Explained: Costs & Transit Times (shipbob.com)
