We can apply tax rates based on the zip code, but unfortunately our shipping feature can only get as narrow as a specific state rather than a city, county or zip code.
Were you looking to create a pick up option for local buyers? You can still do that by creating a shipping rule for the $10 rate in your state and a separate rule that uses the free "Pickup" rate in the Shipping Rate Calculator menu. That would allow buyers in your state to select one or the other option in the shopping cart, with the free option clearly marked as a pickup so that people outside the city do not select it accidentally.
