We don't tell them there is no Santa: We help them transition to a wider world than just one Santa. It is magical when they are young enough to believe in something as magical and unrealistic as Santa coming to every household in the world in a single night to deliver the exact presents to each child. I think it's an important ritual, though, in that believing in the myth creates the capacity for a depth of belief in good and sublime happiness in that short period in his/her young life in when (hopefully) they actually have little to contract that. If it's not done young, life's hardships will permanently remove the ability to belief in a small space in time where everything is right and good and happy. It's an imaginative experience that needs to happen in early childhood.
We have the kids in our family write their annual letter to Santa, and we gauge their level of belief in how they handle that task. If they are doubting, or even no longer believing but afraid to tell us, they won't want to write the letter that year. We ask what they think will happen when Santa doesn't get their letter, and that opens the door to their telling us that they think maybe there is no Santa. We laugh and tell them that Santa does indeed exist, and that it's even better than they think! That Santa lives in the hearts of mom, dad, aunts, uncles, sisters, brothers, and everyone who loves them; we are all Santa, and we are there not just at Chrismas but every single day, watching over them, helping them along in life and once a year doing what we can do to help our younger family members be a special part of a great family Christmas! This is their ticket into the grown up world that helps create a magical holiday for the younger kids who still believe, and it's their sacred trust not to give away the secret. We bring them into their first non-believing holiday by giving them their red fur-trimmed Santa's helper hat that year. It's a fun ritual.
If the child raises the subject on his/her own at another time in the year, we ask the same question, in a different way: Well, what do you think Chrismas would be like if Santa didn't exist? and take it from there in an age appropriate way. So we kind of let them figure it out, but we save the truth for the age when they can understand the more important reality of family vs. magical bearded man. If they are still pretty young, we might encourage them to write their letter that year, just in case, because as far as we know, Santa does read the letters. A way to gauge readiness here is to say, Well how do you think he gets to all the houses? If they answer with a fairly insightful answer that he just can't, then they are ready to transition. If they give an answer that still shows a lack of understanding of time and space, guide them back to "write you letter to be safe" and give them time to puzzle through it some more.
This is a step up, in my opinion, that lets the child believe, with their friends, for the few years when they can, and it transitions them to the reality of holiday happiness and love that actually enlarges it for them. We have never had tears over a child finding out the truth about Santa. In the end Santa isn't one person, who just thinks about the children one day each year: It's about everyone in the child's world who touches their world continually, and thinks about the children every day of every year.