I have tried to do this but if I select PayPal as the payment type, select NZ as the country and then clear the "State" field. The form submits OK, goes to PayPal and then comes straight back again with no errors. It will continue to loop like this until you include a value in the "State" field.
To duplicate the above go to http://www.championnutrition.net.nz. There are two test products to add to the shopping cart by going to "Nutrition and Training -> Competition Prep Packages" and scrolling to the very bottom. Fill out the details and select "New Zealand" for the country. NZ doesn't have any states or provinces so you should be able to clear the N/A from this field and the form should submit to PayPal. But it only works if you leave the N/A there.