@patco
I just tested several times, and if I save the State field in the vendor application, it also saves in the admin.
I do not think your settings are wrong, as there really are no settings for this.
The only trouble with removing the line that saves those values, is if a vendor enters a state code that is incorrect it would cause issues with the vendor shipping.. but if it prevents the issue and you have the vendors enter a proper state name or two digit alpha code, then it should not cause an issue to remove it.