Does Spotify know what MP3s I have on my computer?

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(desktop PC with Windows 10 and Spotify PC app)

Something very creepy just happened to me. I had been listening to random songs that had continued after a selected song, Spotify doing its thing and playing similar songs one after the other. I heard a song I really liked, went to Amazon and purchased the MP3 outright. A couple days later I fired up Spotify, searched for the same song and clicked to play it. Spotify said it couldn't play the song right now, would I like to import the song into the application. Umm.....  WHAT! When I used my cell phone to play the song, it played just fine - and did so via my PC app. When I stopped it and tried to play the song from the PC app - I got the error.

That means Spotify was somehow aware that I had the song on my desktop computer. I deleted the song, restarted Spotify - and the song played no problem. As if Spotify knew the song was no longer on my PC. I'm sorry but that's creepypasta creepy. Either Spotify was in cahoots with Amazon and knew of my purchase that way, or it was able to locate the file in my "DOWNLOADS" folder on my hard drive. Either way - that concerns me A LOT!

Spotify has no business sniffing around my hard drive, looking at what I may or may not have. I always have "Local Files" turned off because I do not prefer Spotify as an MP3 player. I use Spotify to stream stuff I do not own, mostly so I can find new music for purchase. I am 100% interested in supporting music artists I admire, so I got no problem paying for music.

At this point I'm ruling out the partnership with Amazon, as the app allowed me to play the purchased song once I'd deleted it permanently from my hard drive. It has to be that Spotify has unfettered access to snoop at my drive. I mean seriously. How would it know that file, even with a similar name to the song in question, how did it know exactly that it was the song I chose inside their app? Creepy, scary, worrisome and demanding of an answer. PRONTO!