It is by zip code.
So if you are sending to a residence even in the middle of a town that is far enough away from the delivery center to warrant the designation as extreme rural it will be charged this fee.
That kind of sucks, but it is far simpler than trying to designate by distance from all small burgs, etc.
For instance, most of the UP in Michigan ends up getting this extra charge, even in many of the decent sized towns because the centers are so far away (the less volume an area supports the longer between delivery centers there will be), so I suggest people send it to where their customer works if possible as this will normally make it a commercial delivery (unless they work out of a house, but we've already discussed that one
) and avoid the extra charge.