Custom Permalinks for Custom Post Types and Taxonomies

Question

I've been struggling with this for hours.

I'm trying to get this URL structure:
example.com/business/%custom-tax-name%/%custom-post-name%/
By custom tax name I don't mean the name of the taxonomy ("Location"), I mean the value that is chosen for that particular post, which will be a city name. So,
example.com/business/long-island-city/business-name
or
example.com/business/phoenix/business-name/

So far I've made a custom taxonomy:

$singular = 'Merchant Location';
$plural = 'Merchant Locations';
$taxonomy_args = array(
    'rewrite' => array(
        'slug' => 'business-location',
        'with_front' => FALSE,
        'hierarchical' => FALSE
    )
);  
// Register taxonomy ...

and have changed the links in the post_type_link filter

function filter_business_permalinks($post_link, $post, $leavename, $sample) {

if ($post->post_type == 'my_custom_post_type') {
    $terms = get_the_terms($post->ID, 'my_custom_taxonomy');
     foreach ($terms as $term) {
         $post_link = str_replace('business/', 'business/'. $term->slug .'/', $post_link);
         break;
     }

return $post_link;
}
add_filter('post_type_link', 'filter_business_permalinks', 10, 4);

And the resulting URL is fine after that, just what I wanted, so the filter function is working perfectly. However when I click the URL, it goes to this:
example.com/business/long-island-city/long-island-city/business-name
which yields a 404.

What could be causing this and how could I fix it?

All help is greatly appreciated.

Note:
What I don't want is a URL structure like this:
example.com/business/location/long-island-city/business-name/
having the taxonomy name in the URL.

Answer 1

Here's the method I use to get what you're trying to achieve.

First, register your location taxonomy:

register_taxonomy(
    'location',
    array( 'business' ),
    array(
        'rewrite' => array( 'slug' => 'business-location' )
    )
);

Next, register the business post type. The important bit to note here is the inclusion of the %location% rewrite tag in the slug. We'll use that to replace with the location term in the post_type_link function:

register_post_type(
    'business',
    array(
        'label' => 'Business',
        'public' => true,
        'rewrite' => array( 'slug' => 'business/%location%' ),
        'hierarchical' => false
    )
);

Now the function to swap in the location term:

function wpa_business_permalinks( $post_link, $id = 0 ){
    $post = get_post($id);
    if ( is_object( $post ) && $post->post_type == 'business' ){
        $terms = wp_get_object_terms( $post->ID, 'location' );
        if( $terms ){
            return str_replace( '%location%' , $terms[0]->slug , $post_link );
        }
    }
    return $post_link;
}
add_filter( 'post_type_link', 'wpa_business_permalinks', 1, 2 );