You may be uncomfortable perpetuating the Santa story or feel discomfort about lying to your child, and those are legitimate concerns shared by many. On the other hand, you may want your child to believe in something whimsical and magical, like Santa. How to deal with the Santa Claus story is a personal decision that can only be made by your family. Remember, though, that even if you do not share the Santa story in your own family, your child might still come to you with tricky questions about Santa. Perhaps they heard something at school or they have thought about the Santa story and it doesn't completely make sense. Acknowledge the question and praise them for their critical thinking. This is actually a positive developmental step. Determining their reason for asking will help you figure out the best way to proceed.  You might give this question some thought before it ever comes up, so that you are not caught completely off guard. This will help you respond more thoughtfully and slowly, rather than be reactionary. Ask your child very plainly, "Why do you ask?" or "Where is this question coming from?". Just because the child is asking questions doesn't necessarily mean that they are emotionally ready to believe the truth. They may just be curiously probing. Asking what your child believes will give you an idea of where they are emotionally and cognitively. If your child indicates that they still believe in Santa, despite any outside doubts, it's likely not time to tell them the truth yet. Respond to your child's question with a simple, "Well, what do you believe?" This allows them to reflect on what they think and whether or not they believe in Santa Claus. When your child answers your question about what they believe, they will tell you that they don't think Santa is real, or that they do but that they have questions.  This answer should guide how you proceed and you can either tell them the truth about Santa or let them continue to believe. They may also say that they do believe the story of Santa Claus, but are confused about something specific in the Santa story, such as how he gets around the world in one night, or fits all of the presents in one bag.  Just reiterate whatever you've already told them and answer questions as best as you can.

Summary:
Consider your own feelings. Find out what inspired the question. Ask what the child believes. Follow your child's lead.