It uses XAs, check with:

  mdls some-file-tagged-green
  (...)
  kMDItemUserTags                = (
      Green
  )

or with xattr:

  xattr -l some-file-tagged-green
  (...)
  com.apple.metadata:_kMDItemUserTags:
  00000000  62 70 6C 69 73 74 30 30 A1 01 57 47 72 65 65 6E  |bplist00..WGreen|