What are industry best practices in terms of tagging IT assets? What drives the decision to physically or digitally tag the assets? Is it better to outsource the tagging or to tag inhouse?

It really depends on orgnization size, assets types and also any other requirements. In some cases you can just tag digitally and in other cases you tag digitally and physical for examples, Laptops, Desktops, Servers. CMDB which is mostly internal to the organizations where all assets are stored, tagged and tracked. Some orgnization uses special asset management softwares as well. I see people using Qualys as asset management for security vulnerability management and compliance. In house vs outsourcing  also dependes on the size of the orgnization and funding. Based on my experience, CMDB in ServiceNow is used internally as a asset management software.