I watched this movie when I was little so it had to come out in the late 70s or 80s, all I can remember about the movie is that a little boy believes in santa, and I believe santa gets arrested; the other part of the movie I remember, and I think its right after he breaks or gets out of jail, santa is in a hot air ballon with the little boy flying over the city.

Kind of sounds like the Amazing Stories episode Santa '85, except in the end they are flying in his sleigh rather than a hot air balloon.
Amazing Stories: Santa '85 Episode Recap on TV.com

No I remember a little more now the boys parents are divorced and the dad is a piano player I think in los angeles, the boy is looking for his dad and santa helps him find his dad, and during this santa gets arrested, and I remember in the movie that santa and the boy is in a hot air ballon

I haven't seen this, so I'm not sure if it's what you are looking for, but it sounds like It Nearly Wasn't Christmas (1989) (TV). It's a girl rather than a boy though.