Yes, I can repro this on try. Repro steps above are correct:
- Create a tag group with some tags.
- Edit the tag group and set “Tags are visible only to staff”.
- Edit it again and set “Tags can be used by everyone”.
Non staff users cannot see the tags in this group at /tags
, and attempts to create topics with the tags fails with The tag "tag_name" may only be applied by staff.