Employers definitely need to know where you live to pay myriad of payroll taxes. if you lie, you commit tax fraud. It’s true virtually anywhere in the world - including all countries in Europe, not just US thing. You can often skirt law if you are small enough though - nobody cares about random web designer on upwork.
I don't mean as like a privacy thing, I have no issue actually telling them where I live. I guess what I'm getting at is it feels weirdly paternal, like they feel like they're paying me to live in a certain level of comfort and they'll adjust the compensation to meet that level. Whereas I'd rather they pay me the value of the service I provide, no matter where I'm providing that service from. If there is no need to be physically in their office, then 40 hours of my time should be worth the same if I'm sat somewhere with high cost of living or somewhere with low cost of living.
That has nothing to do with the salary-question though. You could separate that completely (and many do via contractors: nobody asks a contractor where they live to set a price for their work): have one party in the company negotiate the salary, and have another deal with employee locations as required by law. Those two don't need to have any contact.
Taxes would be one of the legal requirements, yes. They are required and have a valid interest (as in "who are you, and how can we reach you?") to know where you live. "So we can figure out how much we need to pay you" is not a valid interest in my view. You're not getting paid to live in a certain area, you're getting paid to provide X hours of your time each week.
