The festival reportedly owes back fees to the city.
Musical acts, vendors and sponsors totaling nearly 100 were slated to participate in the upcoming weekend event.
The announcement by the Public Works Dept. marks the first time in the event's 31 years it has been denied a permit.
Sunset Junction organizers owe the city about $256,000 for police, fire, transportation and other services from the event in 2010. The city requires special events to pay estimated city fees in full before issuing permits, but the board made an exception for Sunset Junction last year.
The estimated fees for this weekend's event total about $142,000. Board members said they would consider issuing the permit if the organizers had the money on hand.
A lawyer for the nonprofit said the organization only had about $50,000 available.
Sunset Junction Director Michael McKinley disputed the charges and said city officials delayed turning over itemized bills, including about $204,000 for about 150 police officers.
City News Service contributed to this report.