We don't.
We decided this before our kids were ever born. Our parents and sibings think were are nuts though!! My mother-in-law admonished my wife a couple days ago for us not having an egg hunt!

One thing my wife and I are committed to is telling them the truth even if it hurts. (It's been hard at times, believe me!)
My reasoning for not doing the Santa thing (and other traditions as well) was because of my childhood. My dad was an Atheist, my mom was a "dukes mixture" of witchcraft , astrology, and some other weird ideas. All that added up to
NO JESUS in my home. Christmas and Easter was always about Santa and a rabbit respectively and it never had anything to do with Jesus.
So as a kid, I believed in an unseen omniscient being (Santa) who I loved with all my heart... That was until I figured out it was a lie. Then it broke my heart and killed my faith in the unseen somewhat.
Now my dad never really lied about it, when I asked him if Santa was real he would reply, "Santa is a mythological creature". But with me being too young to know what "mythological creature" meant, it sounded like a resounding YES to me!!
To make a long story short, we decided to break tradition and only tell our kids about Jesus. We figured it would be best to channel that childlike faith into something that was real. I thought perhaps if my kids believed in Santa only to later find out he was not real, it could damage their trust in me and what I teach them about Jesus.
My oldest son was born again at a young age and is very very devout. He sees everything in black and white too. To him, Santa is the anti-Christ!!

He's like John the Baptist or something...
While on the other hand my 4 year old daughter loves Santa and thinks he's real, though we have never told her that. (I think a Sunday School teacher taught her about it all this past Christmas...

)
I do not try to be legalistic about it. I just hope people use good judgment.