My dad had an address in Morgantown, Indiana, and the fact that he lived several miles south, over the county line and past antother small town, always made it pretty clear to me that he didn't live in Morgantown.

Likewise, if you live in another state, there's little confusion because state lines appear on maps and are well marked on all major roads.

Businesses and individuals are responsible for knowing which state they reside in and paying the appropriate taxes, regardless of where their mail is sorted.

As for elections, electoral districts don't generally align with city limits in the first place, so this has to be sorted out by the election registration system based on the full address in most cases anyway.

As for what city name appears in legal documents, the answer is that "preferred" doesn't mean "mandatory". A warrant to search the Indianapolis Motor Speedway, 4790 W 16th St, Speedway IN, 46222, would be perfectly valid, despite the fact that the USPS prefers mail to be addressed to "Indianapolis" rather than "Speedway". For there to be any possibility of confusion, you'd need to have two distinct locations, whose identical addresses share a ZIP code, and differ only by city name, which for obvious reasons the postal service will not allow.