My employer deducts any time taken off, regardless the reason, from earned paid time off.
Is it legal for an employer to deduct time taken off for being sick from the earned paid time off??

For example: calling in sick tomorrow costs a vacation day

Yes, there is nothing to prohibit it. But this begs the question, when DOES your sick leave bank get docked?

PTO banks as commonly used are not solely for vacation time. Their PURPOSE is to be used for all absences, regardless of reason.

I missed that, sorry. Paid Time Off normally DOES incorporate any reason for missed time. That's the whole idea of a PTO plan, instead of separate vacation and sick banks. If it wouldn't be deducted from the PTO balance, where would it be deducted from?