Finder tag not working for all folders

You can't get there from the tag view accessed from the sidebar, but if you navigate to the directory you want to search, and type the tag you're looking for, it will find files in that directory.

As you have tried, Smart folders/Saved Searches by themselves can't be used as the default location. However, they can be made into Canned Searches, which you can use for new windows.

Here is what you need to do.

1. Create a new folder called To-Do (which will become the Canned Search) into your Documents folder.
2. Switch back to your home folder
3. Run a search with the To-Do tag as the query and the Search value to either "This Mac" or your home folder.
4. Click the Save button in the upper right corner
5. By default, it will be showing the ~/Library/Saved Searches folder. Instead, switch to the To-Do folder you created in step 1.
6. Save the search with the name search.savedSearch
7. Open your Documents folder
8. Select and Get Info on the To-Do folder
9. Expand the Name & Extension section
10. Rename the folder from To-Do to To-Do.cannedSearch and press Return
11. Enable the Hide Extension checkbox below, which should become available after renaming, then close the Get Info window.
12. Open the Finder menu and choose Preferences
13. Click the "New Finder window show" pop-up menu and choose "Other..."
14. Browse to your Documents folder and choose the "To-Do" entry
15. Close the Finder Preferences window

Now whenever you open a new Finder window, it will show your To-Do search results.

Hope that helps!