permalink /category/post-name with custom post type and taxonomy

As you’ve said in your comment, the solution – in your case – was to change the slug of your custom taxonomy. The trouble you’ve been running into here is that you had no distinct and unique permalink structure. Namely, it has been unclear to WordPress if the slug portfolio is supposed to be the post type or tag archive, because of that it hasn’t been able to chose a distinct procedure, like which template would be correct in this case, which leads to the an error like you described it.

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