State ground is not used in cottage industry in New York (4)

I believe the answer is:

city

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'state' is the definition.
(city state is a kind of state)

I don't understand the rest of the clue.

(Other definitions for city that I've seen before include "Charlotte, for instance" , "Manchester, e.g." , "Densely populated urban area" , "Town with cathedral" , "- of God (St Augustine)" .)

I've seen this clue in the Irish Times.

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