Is it legal for the IRS to tax your state refund

If you took a deduction for federal income taxes the state income taxes you paid, then any refund of the amount of state income taxes you deducted is subject to federal income taxes.  Since you reduced the amount of federal income taxes paid by the amount of state income taxes refunded, you have to recapture the deduction.  You only get to deduct the amount of state income taxes the State actually kept.  If you did not itemize your deductions and did not take a deduction for state income taxes then your state income tax refund is not subject to federal income tax.