for DNS Sinkhole setup, the DNS Security License is not required. The Threat Prevention License is enough to enable this feature.
Could you please share a screen of your setup along with PAN-OS version?
I would also recommend to have a look into this KB to make sure that it is configured according to best practice: https://knowledgebase.paloaltonetworks.com/KCSArticleDetail?id=kA10g000000ClGECA0
Just to add to @PavelK great answer it is important to point which DNS signature policy you have configured with sinkhole.
As you can see from the documentation "DNS Security" category requires the additional DNS Security license
Trying to use any of the above with action sinkhole or block will require additional license. And this is how it looks on 9.1 versions
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