I rigid tap and single point thread with a 1024 line (4096 quad count) encoder on my lathe, seems to be adequate resolution for the task. While I have a 50 line spindle encoder on my mill, I only am using it for RPM feedback. The only tapping I do on the mill is in manual mode.
A Hall sensor might work, just depends on your controller and software. If your controller will accept spindle encoder input, then I would spend the money on a decent encoder.